As debate heats up ahead of a summer referendum on whether the UK should remain a member of the European Union, Terra Firma Capital Partners founder and chairman Guy Hands told the SuperReturn Conference in Berlin that he believed “Britain staying in the EU is the right thing for Britain and for Europe.”
In a conference speech, he described those in Britain in favour of leaving the EU as trying “to pull up the drawbridge to Europe and hop[ing] that by doing so that the problems of living in a global world will go away and that Britain can go back to a golden age.”
In a poll of polls, 54 percent of Britons support staying in the EU, while 46 percent are against, slightly down on a week ago.
“People are talking about it, people are thinking about it at quite a high level,” British Private Equity and Venture Capital Association (BVCA) director Tim Hames said during a panel debate on how a so-called Brexit would impact financial services, as reported by Private Equity International.
“Particularly in the event of a leave victory [in the referendum] there will be some quite profound and detailed considerations which institutions would need to undertake,” Hames said, noting that among BVCA members there had been “relatively little active preparation thus far” for a possible UK exit.
Hands counted the prospect of a UK exit from the EU among factors creating a world “where uncertainty is normal” and which also included “extremist politicians in the West, wars and failed states in the Middle East, heightened Russian militarism … and the possible breakdown of nation-states across Europe – be it Scotland leaving the UK, Catalonia leaving Spain or Flanders leaving Belgium, let alone what will happen to Ukraine and the other states that border Russia.”
“The conflicts and divisions of previous centuries are rising to the surface as we see America and the European Union weaken,” he said.
Speaking about Terra Firma, which has seen its own ups and downs, Hands noted that he and Justin King, the former CEO of UK supermarket chain J Sainsbury who joined the firm in September as head of portfolio businesses, were building a team, looking for “people who will be committed for the next 10 to 20 years.”
The firm has struggled to raise capital since a failed investment in UK music publisher EMI Group in 2007. Terra Firma Capital Partners III, a 2007-vintage, €5.4 billion fund subsequently lost £1.75 billion ($2.4 billion; €2.2 billion) on the deal when the company went into administration.
The firm is seeking more than £2 billion in damages from Citigroup, which had financed the transaction. It lost its original suit filed in New York, which was overturned on appeal, and a retrial has been scheduled in London in June 2016.
During an address at the London School of Economics last month, Hands noted that the EMI transaction was one of his worst deals, along with the acquisition of off-licence chain Threshers in 2000 and technology provider Quadriga, while he was at Nomura International.
In November Terra Firma launched a tender offer for stakes in its 2007 fund giving its LPs an option to exit, as reported by PEI. Goldman Sachs Asset Management agreed to purchase $200 million of the fund stakes in the process run by Credit Suisse. Terra Firma pledged to acquire 10 percent of LP stakes offered.
The last fund the firm raised was the 2012-vintage Terra Firma Special Opportunities Fund I that closed on £472 million, according to PEI Research & Analytics.
Hands informed conference delegates that in the past year, the firm has announced that it is seeking greater alignment with its LPs by reducing the number of its investors; would take a 10 percent stake in each investment; would not charge fees on uninvested capital; has abolished staff short-term bonuses; has reduced salaries; and has allocated equity in the firm to senior employees.
“Private equity is entering a period where the winners won’t be the savviest financial engineers or the best fundraisers. Success will come to organisations where people have shared values, and where they are focused on the long term.”
He chided firms within the industry for not applying the same scrutiny they would to portfolio companies to themselves and for not evolving.