Terra Firma Capital Partners

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Terra Firma Capital Partners Ltd
Type Private limited company
Industry Private equity
Predecessor(s) Nomura Principal Finance Group
Founded 2002
Headquarters London, England, UK
Key people Guy Hands, Chairman
Products Investments, private equity funds
Total assets £4.7 billion
Employees 100+
Website www.terrafirma.com

Terra Firma Capital Partners Ltd (TFCP) is a leading U.K.-based private equity firm, best known for its failed investment in British music company EMI.[1][2] Financier Guy Hands founded the firm in 2002 through the spin-off of Nomura Principal Finance Group. The firm, which traces its roots to the formation of its predecessor in 1994, has invested over €13 billion since inception.

Terra Firma invests across a range of sectors and has focused on leveraged buyouts of large, asset-rich businesses, often with complex structural or regulatory issues. The firm often targets under-performing businesses in need of strategic, operational or management change.

Terra Firma is headquartered in London with an office in Frankfurt and the small island of Guernsey with a staff of over 100 employees.

Contents

[edit] History

[edit] Founding and early history (1994-2006)

Terra Firma traces its origins to 1994 when Guy Hands formed Nomura Principal Finance Group, which focused on European private equity investments. Hands joined Nomura after three other banks, including his previous employer Goldman Sachs, turned down his investment plan.[3] At Nomura, Hands and his team completed over $20 billion of leveraged buyouts. By 2000, Hands was reported to have generated profits for the bank in excess of $1.9 billion making him a star financier in London.[4][5][6] The group’s most notable previous acquisitions included Le Méridien, the hotel chain as well as William Hill, the U.K. bookmaker, and Angel Trains, the U.K. Rolling Stock Operating Company[7]

Terra Firma logo used by the firm from its founding 2002 through 2006, when fundraising began for TFCP III

In 2002, with support from Nomura, Hands completed a spin-out of the bank's private equity operations to form Terra Firma, after first contemplating a move to another major financial institution.[8][9] The previous year, there had been reports that Nomura had too much of its capital invested in the Principal Finance Group and that Hands' profile was overshadowing the bank.[3] The existing portfolio of investments that the Principal Finance Group at Nomura from 1994 through 2002 was transferred to a new fund named Terra Firma Capital Partners I and Terra Firma continued to manage those investments for Nomura. Nomura also provided a cornerstone commitment to Terra Firma's first independent fund, Terra Firma Capital Partners II.[10]

In 2004, Terra Firma completed fundraising for its first private equity fund with over €2 billion in investor commitments.[11] The firm had closed on its first €1 billion of capital by late 2002, only a matter of a few months after launching the firm, but amidst a difficult fundraising environment required more than a year to finish fundraising.[12] Investors in the fund included Wilshire Associates, Partners Group, Horsley Bridge, Adams Street Partners, NIB Capital, Citigroup and Canada Pension Plan.[11] At the time, this represented the largest debut fund for a European private equity firm.[13] The firm had completed its first transaction as an independent firm in mid-2003 with the £315 million acquisition of Waste Recycling Group, the largest operator of landfills in the U.K.[7]

Terra Firma closed its second independent fund, Terra Firma Capital Partners III in June 2007 with approximately €5.4 billion of investor commitments.[14] The closing of the fund coincided with the announcement of the firm's ill-fated investment in EMI just weeks earlier and a high profile attempt to acquire U.K. chemist Alliance Boots, which was ultimately acquired by Kohlberg Kravis Roberts & Co.[14] In raising Terra Firma Capital III, the firm made a strong display of avoiding "club deals", transactions completed alongside other private equity firms. In addition to presenting what was described as unique investment opportunities, Terra Firma was active in providing equity co-investment opportunities to limited partner investors in its funds.[15]

Terra Firma was the first large private equity firm based in the UK to comply with the Walker Guidelines on transparency and disclosure. In April 2008, the firm published its first ever Annual Review,[16] which exceeded the Walker reporting requirements and set a standard for voluntary private equity reporting in the UK.[17]

[edit] EMI Investment (2007-2011)

See also: EMI
right Offices of EMI in London. Terra Firma acquired EMI in 2007 and lost control of the company in 2011

Terra Firma acquired EMI in a $6.4 billion (£4.7 billion) public-to-private buyout transaction in August 2007.[18][19] Terra Firma invested in the deal through its TFCP II and TFCP III funds, and also included a number of equity co-investors in the transaction.[20]

Following the transition, several important artists including Radiohead walked away from the label, while other artists such as Paul McCartney left ahead of the takeover.[21] At the same time, The Rolling Stones signed a one-album deal with Interscope Records/Universal Music Group outside of its contract with EMI, which expired on February 2008,[22][23] and then in July 2008 signed a new long term deal with Universal Music Group.[24]

Around the same time, EMI announced a restructuring plans to cut between 1,500 and 2,000 jobs[25] and to reduce costs by £200 million a year. As a result, the U.K. chief executive Tony Wadsworth left EMI shortly after the buyout.[25]

By the fall of 2008, the firm's investment in EMI was clearly troubled with a large debt load and weak earnings[26][27] In early 2009, Terra Firma wrote down the value of its investment by €1.37 billion, approximately 46% of its original value.[28] However, Terra Firma and Hands personally continued to put new money into the company in order to avoid a default under its loan obligations to lender, Citigroup.[29][30] By 2010, it was reported that Hands had invested between 60% and 70% of his personal net worth in the EMI transaction.[31]

In December 2009, Terra Firma filed a lawsuit against EMI's primary lender Citigroup, claiming the bank engaged in fraud during its auction of the company in 2007.[32] The lawsuit went to trial in New York in late 2010[33] and resulted in a jury finding in favor of Citigroup and against Terra Firma and Guy Hands.[34]

Citigroup took ownership of EMI Group from Terra Firma on February 1, 2011, wiping out the firm's investments and writing off £2.2 billion of debt.[35][36] Terra Firma was reported to have lost $2.5 billion in the EMI transaction, representing roughly one-third of Terra Firma's investor's capital as well as more than 60% of Hands' personal net worth.[34][37]

[edit] Post-EMI (Since 2011)

In mid-2011, months after the loss of EMI, Terra Firma began speaking with potential investors about the firm's next fund, Terra Firma Capital Partners IV. Terra Firma is targeting to raise upwards of £2.5 billion, which would be roughly half the size of its predecessor with raised £4.8 billion.[38][39] With the exception of EMI, the balance of Terra Firma’s current fund was reportedly performing well, although the fund was still under water.[37][40]

In November 2011, Terra Firma was reported to be in discussions with a sovereign wealth fund about a new capital commitment to allow the firm to continue investing after the investment period of TFCP III runs out next year.[41]

[edit] Investments

Between 1994 and 2007, Terra Firma and its predecessor invested approximately €11 billion in equity and completed transactions with an aggregate enterprise value of €42 billion.

Terra Firma is known for its failed investment in British music company EMI, which was later taken over by Citigroup, the main lender in the investment, after Terra Firma was unable to keep up interest payments on its loans.[42]

Tank & Rast owned rest stop along the Autobahn in Germany
William Hill plc, bookmaking parlor in the U.K.
The Odeon Cinemas in Leicester Square, London

The firm's early investments, while still a division of Nomura, focused on housing (Annington Homes), leasing companies and pubs. Since 2002, the firm has made major investments in the waste management (Waste Recycling Group), energy (BGCL, East Surrey Holdings, Phoenix Natural Gas, and Infinis), aircraft leasing (AWAS), cinema (Odeon Cinemas/UCI) and music sectors (EMI). TFCP has also made significant investments in German residential housing (Deutsche Annington) and motorway services (Tank & Rast).

[edit] Investment Funds

Since founding in 1994, Terra Firma has raised four private equity funds.

  • Terra Firma Capital Partners I (TFCP I) was formed in 2002 to house the assets that had been acquired from 1994 through 2002, while the team was still part of Nomura. Nomura was the sole investor in this fund.[43]
  • Terra Firma Capital Partners II (TFCP II), the firm's first independent fund, was closed in February 2004 with €2.1 billion of investor commitments. In addition to Nomura, which made a cornerstone investment, the fund raised capital from 65 investors from 21 countries.[43]
  • Terra Firma Deutsche Annington (TFDA) was formed in 2006 to house the firm's German housing investments Deutsche Annington (DAIG). The firm raised €2.1 billion of investor commitments from 21 investors.[43]
  • Terra Firma Capital Partners III (TFCP III) was closed in May 2007 with €5.4 billion of investor commitments. The fund's limited partnership comprises 159 investors from 26 countries.[43]

In mid-2011, Terra Firma began speaking with potential investors about the firm's next fund, Terra Firma Capital Partners IV. Terra Firma is targeting to raise upwards of £2.5 billion, which would be roughly half the size of its predecessor with raised £4.8 billion.[38][39]

[edit] Portfolio companies

The following are among the firm's most notable current and former portfolio companies:

[edit] See also

[edit] References

  1. ^ How Citigroup Outfoxed Guy Hands In Its Takeover Of EMI. Billboard, February 03, 2011
  2. ^ EMI Taken Over by Citigroup, Making a Sale More Likely. New York Times, February 1, 2011
  3. ^ a b Hands edges toward Nomura exit door. May 7, 2001
  4. ^ Guy Hands. Financial News, June 14, 2000
  5. ^ The Man Who Loves Disasters. Business Week, June 5, 2000
  6. ^ Nomura's guy hands: Dealmaker extraordinaire. Global Finance, November 2001
  7. ^ a b UK Terra Firma to seal debut deal. AltAssets, Jun 9, 2003
  8. ^ Hands seen dropping plans for major bank role in new fund. AltAssets, Jul 30, 2001
  9. ^ COWELL, ALAN. "World Business Briefing | Europe: Britain: Nomura Investor To Open Fund." New York Times, November 10, 2001
  10. ^ Nomura signs agreement with Guy Hands to invest in Terra Firma. AltAssets, Jan 18, 2002
  11. ^ a b UK Terra firma announces final close on E2bn. AltAssets, Mar 3, 2004
  12. ^ Guy Hands’ Terra Firma holds first close on debut independent fund. AltAssets, Nov 1, 2002
  13. ^ Guy Hands holds second closing for Terra firma fund on E1.7bn. AltAssets, Nov 11, 2003
  14. ^ a b Terra Firma closes €5.4 billion fund. Private Equity International, Jun 19, 2007
  15. ^ Battle of the Bands: Citigroup Is Up Next. New York Times, February 6, 2010
  16. ^ Terra Firma 2007 Annual Review
  17. ^ Private Equity is Still Not Showing its Hand. The Telegraph, 2007
  18. ^ EMI Accepts $4.7 Billion Bid From Terra Firma. New York Times, May 21, 2007
  19. ^ $4.7 Billion Private Equity Buyout Wins Support at EMI. New York Times, May 22, 2007
  20. ^ Terra Firma Said to Unveil EMI Plans. New York Times, November 13, 2007
  21. ^ "Profile: British music giant EMI". BBC News. 15 January 2008. http://news.bbc.co.uk/2/hi/entertainment/7188861.stm. Retrieved 16 March 2008. 
  22. ^ "Stones sign one-album record deal". BBC News. 17 January 2008. http://news.bbc.co.uk/2/hi/entertainment/7193467.stm. Retrieved 17 March 2008. 
  23. ^ Jenison, David. "Stones Shine a Light on EMI's Woes". E! Online. http://www.eonline.com/news/article/index.jsp?uuid=91f13094-fbfc-4138-b6f5-7fc9dc2dbe9d&entry=index. Retrieved 17 March 2008. 
  24. ^ "Stones ditching EMI for Universal". BBC News. 25 July 2008. http://news.bbc.co.uk/2/hi/entertainment/7525887.stm. Retrieved 1 May 2010. 
  25. ^ a b "EMI set to cut up to 2,000 jobs". BBC News. 15 January 2008. http://news.bbc.co.uk/2/hi/business/7188898.stm. Retrieved 16 March 2008. 
  26. ^ EMI’s New Boss Sees Cracks in Music World. New York Times, June 16, 2008
  27. ^ Guy Hands Sees No Sunshine Ahead. New York Times, November 21, 2008
  28. ^ Terra Firma Writes Off Half of EMI Investment, Report Says. New York Times, March 3, 2009
  29. ^ Terra Firma Prevents EMI Default on Citi Loans. New York Times, May 14, 2010
  30. ^ Could Terra Firma Follow In Forstmann Little’s Footsteps?. New York Times, June 16, 2010
  31. ^ Hands on the Stand: Replaying the EMI Deal. New York Times, October 20, 2010
  32. ^ Suit Accuses Citigroup of Fraud in EMI Deal. New York Times, December 12, 2009
  33. ^ Financier And Banker To Face Off On EMI Sale. New York Times, October 14, 2010
  34. ^ a b Citigroup Is Cleared of Fraud in EMI Sale, a Setback for British Financier Guy Hands. New York Times, November 5, 2010
  35. ^ Citigroup wrestles EMI from Guy Hands' grasp, The Guardian Feb 1, 2011
  36. ^ 4:21 PM (2011-02-01). "EMI announces successful capital restructuring, and change of ownership". EMI Music. http://www.emimusic.com/news/2011/emi-announces-successful-capital-restructuring-and-change-of-ownership/. Retrieved 2011-11-16. 
  37. ^ a b Guy Hands Offers EMI Post-Mortem. New York Times, February 22, 2011
  38. ^ a b Terra Firma's Guy Hands searches for £2.5bn investment. The Telegraph, Jul 3, 2011
  39. ^ a b Terra Firma targets €3bn fund, says Hands. AltAssets, August 22, 2011
  40. ^ Former Citi Buyout Banker Heads to Terra Firma. New York Times, June 6, 2011
  41. ^ Terra Firma seeks €1bn sovereign fund pool. Financial Times, November 24, 2011
  42. ^ EMI taken over by Citigroup in deal to write off debts - BBC News article
  43. ^ a b c d Terra Firma: Investor Relations (company website), Accessed November 29, 2011
  44. ^ Nomura plots Unique pubs sale. The Telegraph, Jul 1, 2001
  45. ^ Nomura placates investors as William Hill float is scrapped. The Independent, February 22, 1999

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