Terra Firma to invest from €1bn committed capital

Greg Gille
09 February 2015

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Guy Hands' Terra Firma has announced it will finance new deals via its own capital reserves (currently amounting to тЌ1bn) with support from co-investors.

"Based on the capital returned and the profits made [over the last three years] we are delighted to announce that we have committed discretionary capital available for new transactions," Terra Firma CEO and chairman Guy Hands said in a statement.

Hands added that his firm had returned more than €6bn to its investors over the last three years and produced cash profits for them in excess of €4bn. Exits made by the GP in that time frame include Deutsche Annington, the German residental real estate company listed in a €3.5bn+ IPO in 2013. Terra Firma reaped €585m from the sale of a further 12.5% stake in May last year.

The GP's latest fund, Terra Firma Capital Partners III, closed on €5.4bn in 2007.

The firm's track record has been tarnished by its troubled investment in EMI, which caused losses of £1.75bn. Terra Firma is still mired in an ongoing legal battle surrounding the music company deal, with a retrial currently expected to take place in June 2016.

Meanwhile Terra Firma is still officially on the road to raise a $2bn renewable energy fund, an effort that has been going on for more than a year. The process was initially led by managing director Damian Darragh, until his departure at the beginning of 2014.

Three managing directors – Mike Kinski, Stefan Thiele and Ingmar Wilhelm – were tasked with taking over. Thiele will be leaving the firm in the coming months, according to a source close to the situation. The fundraising process is nevertheless understood to still be underway.

Terra Firma has also had to deal with a high turnover rate in its investor relations team in the past couple of years. IR head Lachmi-Niwas Sadani left the company in August last year, making him the third person to exit this role in just four years. He had only been with Terra Firma for 12 months and had replaced previous IR head Kamal Tabet, who was with the firm for 11 months and left in May 2012.

The deal-by-deal brigade

The move towards financing deals via a mix of own capital and third-party money raised on an ad hoc basis has been gaining in popularity in the post-crisis years.

Mid-cap GP Duke Street abandoned plans to raise a €850m vehicle in 2012, instead turning to a deal-by-deal fundraising model. The GP said at the time that it would be looking to raise a more traditional vehicle when investors display more appetite, but that given the level of interest the firm had received for deal-by-deal commitments, the next fund would likely follow a mixed model.

Such an arrangement has indeed been popular with LPs, given their own appetite for direct co-investments as a way to generate more substantial returns and eschew heavy fee structures.

This has not been lost on new players looking to carve their niche in an overcrowded fundraising market. Frost Brooks, co-founded by former LDC professionals Miles Frost and Peter Brooks, launched last year seeking investments of between £1–10m in growth and buyout deals. The firm invests capital from its founders as well as through its network of high-net-worth individuals and family offices.

"When you invest your own capital in each transaction and supplement that with a few deep-pocketed investors, the need for a fund is less acute," Miles Frost told unquote" in an exclusive Q&A last year.