| Type | Private limited company |
|---|---|
| Industry | Private equity |
| Predecessor | 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 |
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]
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]
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]
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.[40][37]
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]
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]
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).
Since founding in 1994, Terra Firma has raised four private equity funds.
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]
The following are among the firm's most notable current and former portfolio companies:
|
|||||||||||||||||