Guy Holds His Hands Up

Financier Guy Hands has admitted that he’ll avoid EMI-scale deals because the market can no longer swallow them.

Terra Firma, his London-based private equity firm, paid $6.8 billion for the English music company in 2007, but in January lost it to Citigroup because after breaching its loan covenants.

Citi is about to put the company on the block and will get an estimated $3.5 billion for it.

Terra Firma lost more than $2.8 billion on the deal but Hands told The Guardian that he wouldn’t allow the deal to dent his confidence.
“You have to learn from things,” he said. “It’s a little bit like if you fall off a horse. There is no point getting back on it and saying it does not matter. But you do not want to lose confidence.

“Whether it is in business, politics or any form of life, if something does not work you need to learn from that.”

Hands has been talking to existing and potential investors about launching a new fund with about $4.2 billion in capital, which shows how far the private equity business has fallen.

When Terra Firma’s last fund closed in May 2007 it had raised $7.6 billion and could have pulled in a further $4.2 billion from investors riding the buyout boom.

Hands made his name in the ’90s with deals such as the $1.1 billion acquisition of rolling stock business Angel Trains, which was subsequently sold at a $628 million profit.

Negative publicity still lingers over the EMI deal as Hands launched an unsuccessful court case, currently going through an appeal, in which he accused Citigroup of misleading Terra Firma during the EMI sale.

At the end of last year it took a New York jury four hours to throw out the original case.

Hands said Terra Firma’s new modest approach reflected an industry-wide fundraising drought rather than loss of faith in his firm.

“The private equity market is down 70 percent since 2007,” he said. “All private equity firms need to be realistic about the change in size of the market.

“What happened in 2007 is that people raised large funds and that meant people either had to do huge deals or end up with a lot of money that they have not been able to spend.

“We are just as realistic about it,” Hands added. “We don’t want people having large war chests of money which cannot be used.”