Peter Chappelow, a private equity portfolio chairman, offers some rather upbeat news about lending to private equity-backed companies and why just as he was ready to retire he chose this line of challenging, yet highly satisfying line of work.

Peter Chappelow's enthusiasm for his portfolio companies is more a sign of pride than self-adoration. He is the only chairman to have three companies listed in the most recent Sunday Times Fasttrack 100, which means he or the people he directs must be doing something right. We ask him how the chairman's role has changed since the onset of the credit crisis.

Peter, how did you get into the "portfolio business"?
At the age of 55 I was thinking of retiring. But then when I got to 55 a takeover of Thomson by TUI happened. I was on the main board at Thomson Travel at the time, but decided to leave after a few years. I thought at this point I might try a chairmanship, but what I didn't realise then was how difficult it is to get into this line of work. I thought I'd just make a few phone calls. Instead I had to start networking. I saw 156 people within the corporate finance and private equity side of things as well as banks specialising in leveraged buy-outs before I got offered my first chairmanship, which was for a turnaround for 3i. The reality is that people are only doing a couple deals a year and the chances of them having a suitable opportunity is relatively rare. Also, they often all have relationships with proven Chairmen. I had to work hard at networking and then a lot of opportunities came all at once. At one time I had eight chairmanships.

What finally brought you over to the other side of the bridge?
I think it was that there are not that many opportunities, but there are many well established chairmen around, so when you first go in as a portfolio chairman you are just another grey haired middle aged guy who has sat on a few boards, so you have to persuade people. Once a couple firms give you a chance and you have something to put on your CV the others follow quickly. Even though I now have a few successful exits under my belt, I still do network.

What attracts you to a chairmanship on a private equity backed business over one at a PLC?
Everything is more attractive on a private equity chairmanship. There is no comparison since you can have equity, unlike a non-exec of a PLC. You have got your interests aligned with the private equity house. I have made very significant amounts of money working with private equity-much more than I could ever have made as a non exec for a quoted business. More importantly, as shareholders are my primary focus, my shareholders have done very, very well!

How are you finding your role in the current economic climate?
Many private equity-backed businesses are niche businesses that are capable of performing well, even if the economy is struggling. I have found that new businesses with private equity backing have the ability to raise debt, but not as much as they used to. I just had a lunch with a major private equity business and they have pulled off two deals in the last few months and are looking at 5 others. They say getting lending for quality businesses is not a problem.

That's a silver lining! Which sector are they in? What is attracting the lenders?
I know many of the leading bank lenders--good old organic growth is what they are looking for. Consumer-facing and service companies are attractive, especially if there is sustainability and there is a proven capability in growing the business; there is not too must risk of it going backwards—this is where the money is getting channelled to.

One of my chairmanships, for example, sells shoes to the 'grey' market and we are doing spectacularly well. Profits have surged forward and retail like for like sales are well ahead—up between 16 % and 20%. Niche markets can prove successful in any economic climate. But I can only speak from my own experience and in this moment in time. Having said that, I am also chairman of another company that sells escorted tours to the same market and that is more difficult. The problem is connected to travel rather than their personal liquidity.

Even if you have a good core operational business, how would the cost of capital have changed since the credit crisis?
You are not getting 6 times EBITDA, which I didn't like anyway since companies were too overleveraged and overstretched to work. Three to four times earnings is what you can get now, which shows that banks are more cautious, which I think is a good thing. Many private equity firms have taken on too many risks in terms of dependence on aggressive growth. Doing a restructure is a polite way to say that turnaround specialists are needing to get rid of a lot of debt or in other words: the investors are losing money.

Are PE shareholders particularly close/demanding?
The great thing about working with private equity firms is that there are no dummies in there—there are some very, very bright people in there. Those that are more hands-on are those that take on undervalued assets and quite rightly that is a different skill set and they do have to get their hands dirty. I think the bigger companies do tend to swamp the board and seem to discuss minutia until the cows come home rather than the problems that we are trying to find the solutions to.

But each firm is remarkably different. The ones I prefer dealing with are very supportive and attend the board meetings, but do not pretend that they have a lot of hands-on experience running businesses. They act as the finance folk per se. I value those relationships. They offer a different perspective and they are very valuable. However, the ones I prefer not working with and avoid now, are those that are very bright, yet think they are experts in every single business that they sit on the board of simply because they analysed it. I also prefer working with a private equity investor over a private owner who has brought me to improve shareholder value. When a company is entirely privately owned they do not necessarily have to take your advice and the entrepreneur can be a little bit too powerful. I believe when private equity is involved you have a more reasonable debate.

How do you manage the need to be an independent chair with the fact that you are a shareholders' man"?
You never lose sight of the fact that you are an independent non-executive chairman. You must be aware that your corporate governance responsibilities are quite frightening and you have to put that first. You absolutely must not "go native" with either the management or the shareholders because you are valued for your independence, objectivity and primary responsibility for the company itself as a legal business entity. For example, I had to have a lawyer attend every one of the board meetings of one of the companies I restructured so he could assure the board that they were not guilty of unlawful trading at a time they were potentially going to make losses.

How "hands-on" have you needed to be?
The best answer I can give is to give you an example of one of my investments where the original owner sold more than half of his stake to a private equity firm and asked how involved the firm would be with the running of the company? The private equity manager said: "Put it this way, if you are not making the agreed targets then you will have two new best friends and that will be me and the chairman."

If a company is not doing well, I have to spend a lot of time there and may even have to replace a few executives. If a company is doing well it's a piece of cake and I can just focus on the exit, since my main job is creating shareholder value, which means achieving an exit that is beneficial to the shareholders.