Private equity boss Guy Hands has finally come close to admitting what most people have already worked out: his company Terra Firma’s £4bn acquisition of EMI wasn’t a very good deal. Speaking at a conference in New York, Hands said that he wouldn’t have bought the debt-laden record company if the auction had been just two weeks later – and as such would have been considerably richer, since the deal ate up such a big chunk of his funds. Instead, Hands is now wrangling with Citigroup to renegotiate the company’s debt, which is likely to see another sizeable chunk of his equity wiped out. So, all things considered, this admission shouldn’t come as a massive shock...
Hands was apparently citing EMI as an example of the role luck and timing can play in private equity investments – a refreshingly honest notion in an industry whose participants are sometimes a bit keen to see themselves as prophetic geniuses. And although he didn’t actually come out and say that he wished he’d never touched the company with a bargepole, he clearly regrets the way it worked out. The deal, which tied up almost a third of Terra Firma’s funds, took place at the height of the buyout boom, just weeks before the onset of the credit crunch. ‘If the EMI auction started two weeks later, it wouldn't have occurred. We wouldn't have bought it,’ Hands lamented. ‘We'd have 90 percent of our funds still to invest and we'd look like geniuses’. (You can fill in the unspoken second half of that point yourselves).
On the plus side, EMI does actually seem to be heading in the right direction. Hands (who recently moved upstairs at Terra Firma) said earnings in the recorded music division had more than trebled to £160m last year and could top £200m this time round, thanks partly the success of some Beatles re-releases. Unfortunately, however, Reuters reckons it’s costing the firm nearly $500m just to service its debt, which is why Terra Firma is currently trying to cut a deal with Citigroup. Hands refused to elaborate on the talks, but it’s likely to require yet another injection of capital, and another write-down in the value of its equity. It’s already lost over £1bn on the deal, and if the firm can salvage any of their cash they’ll be doing well.
Hands is a well-known karaoke enthusiast (one of the main reasons he was desperate to do the EMI deal in the first place, some say). He suggested his favourite song – albeit in the context of the future of the private equity industry – was ‘We Will Survive’ (sic). But when it comes to EMI, perhaps karaoke standard My Way would be more appropriate: ‘Regrets… I’ve had a few…’
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