Moulton's Better Capital saves Reader's Digest UK

Private equity firm secures future of magazine with £14m buyout

Reader's Digest, the staple of doctors' waiting rooms around the UK, has been saved from collapse by the private equity maverick Jon Moulton in a deal worth £14m.

Gill Hudson, the editor-in-chief of the 72-year-old magazine, confirmed the management buyout backed by Mr Moulton's Better Capital, last night.

She said: "I never had any doubt that we wouldn't be bought. There are fantastic growth opportunities for the business."

The move will save the 117 employees in the UK who work in the group's Swindon and Canary Wharf offices and also wipe out its debts.

Reader's Digest UK, which covers anything from adventure stories and health advice to gardening tips and travel, was forced to called in Moore Stephens as administrators in February after it failed to agree a funding package to plug its £125m pension deficit with the UK pensions regulator.

The watchdog blocked the plan to pay £10.9m into the scheme, which has 1,600 members, and transfer a third interest in the equity to its trustees. Reader's Digest Association (RDA), the US parent, said it could no longer support the business. In a statement the group said it did "not see a clear pathway to profitability in the UK over the next several years".

Investment firm Better Capital's statement announcing yesterday's deal said the move "secures the future of the business". RDA, which had been extremely protective over the brand, has agreed to allow the UK operations to publish under the Reader's Digest brand through a licence agreement.

Sean Cooper, director of operations at Better Capital, said: "This was a once-in-a-lifetime opportunity to get hold of a company like Reader's. We felt in a good position to step in, and support it fully and invest fully in the business."

Reader's Digest is the second investment by Better Capital, which was set up last year by Mr Moulton after he quit Alchemy, the private equity firm he founded in 13 years ago. The investment fund bought the aerospace parts group Gardner Group from Carlyle, a private equity company, for £20m in February.

Reader's Digest's US parent has suffered financial upheaval itself as it fell into Chapter 11 bankruptcy protection in August. The group had been bought out at the height of the debt bubble in March 2007 by a consortium led by the private equity group Ripplewood. The consortium was forced to write down its entire equity investment.

The Reader's Digest Association was founded in 1922 by DeWitt Wallace. A voracious reader, he came up with the idea of compiling the best articles from a range of magazines as he recovered from shrapnel wounds received during the First World War. The magazine, which he launched with his wife, Lila, was a huge success, and now covers 70 countries with a circulation of 17 million. The British edition has been running since 1938 and despite falls in circulation from 1 million in 2001 to 465,028, retained a loyal following. When it ran into difficulties, Gill Hudson wrote a bullish piece saying reports of the magazine's death had been "greatly exaggerated". There was public support, including from the author Alexander McCall Smith, who called it as iconic as Wisden Cricketers' Almanac, "and just as important".

Ms Hudson, who previously edited the Radio Times, took over from Sarah Sands, former editor of The Sunday Telegraph last year. She said the new business would invest in building its online operations: "We have a fantastic heritage, but haven't had enough investment recently, I'm desperate to have an online community of readers."

Jon Moulton: Doyen of venture capitalists

*Jon Moulton, a doyen of the UK's private equity industry, has overseen a string of successful deals during his 30-year career in the buyout industry. Yet he is as famous to the British public for the deal he did not do, when he failed to secure MG Rover in 2000.

More recently, his voice has become familiar to listeners of the Today programme on Radio 4, with his eloquent insights into the root causes of the financial downturn.

After overcoming TB and aplastic anaemia in childhood, Mr Moulton studied chemistry at university and has said he would have been a scientist if he had not moved into private equity. He trained as a chartered accountant with Coopers & Lybrand. In 1984, he was headhunted to help set up Schroders' venture capital arm, which is now Permira. The deal that burnished his reputation was the buyout of Parker Pens for £50m in 1986. He sold it for £312m seven years later.

Mr Moulton left the company following a row and joined Apax Partners, before falling out with its head, Ronald Cohen.

He set up Alchemy Partners in 1997. When he quit, more than a decade later, the market was shocked. His departure came after a falling-out with Dominic Slade, the head of the group's buyout arm, over the strategic direction for the firm. Mr Moulton took an angry swipe at his colleague in a letter to investors explaining his decision and complained: "Alchemy is not what it was." Mr Slade retorted that he wished Mr Moulton "a long and happy retirement".

His time away was just a day, as it emerged he was to set up Better Capital, to invest in distressed companies. Mr Moulton, who is worth an estimated £100m, invested £15m of his own money in the company. He successfully listed the company on the Alternative Investment Market in December.

In a recent interview he said his best three features were "Determination, curiosity and insensitivity – it lets you sleep when others can't".