SINGING A DIFFERENT TUNE

“Honesty, transparency and performance”. It might be a private equity firm's own mission statement or even an extract from the Walker Report. In fact, the words come from an internal memo distributed by Terra Firma chief executive Guy Hands (and subsequently reproduced by the Financial Times) calling for new portfolio company EMI to adopt a culture imbued by such qualities.

Having paid £2.4 billion (€3.4 billion; $4.9 billion) for the struggling British music recording company in August, Hands is clearly in no mood to indulge its roster of amply compensated pop stars. In the memo, he wrote: “While many spend huge amounts of time working with their label to promote, perfect and endorse their music, some unfortunately simply focus on negotiating for the maximum advance…advances which are often never repaid.”

Hands went on to hint that artists not prepared to buy into his work ethic would be dropped and also that the pay packages of senior recording executives would be under scrutiny.

One thing is clear: by his own admission, EMI will present Hands with one of his most demanding turnaround tasks to date. In September, he described it as the worst business in the most challenged sector around at a Royal Television Society convention speech. Against a background in which making money from recorded music now seems virtually impossible, EMI announced full-year losses of £264 million in May this year. The firm, which had issued two profit warnings in the space of four weeks earlier in the year, has seen sales of CDs plunge.

In a bid to arrest this decline, it is clear that artistic whim will no longer be indulged in the pursuit of profit. As an example for others in the EMI stable to follow, Hands may point to the lyric from Clocks by Coldplay, which includes the words: “Am I a part of the cure, or am I part of the disease?” It's the kind of honest self-analysis that Hands is likely to applaud.

LBO VALUE PLUMMETS, MID-MARKET HOLDS UP
The value of large European leveraged buyouts has plummeted by 70 percent in the third quarter compared with the previous three months, according to UK buyout firm Candover's latest data. The firm's Unquote Barometer showed the value of deals greater than €1.65 billion ($2.36 billion), fell in Europe from €29.8 billion to under €9 billion in the quarter to the end of September. Terra Firma's £2.4 billion (€3.4 billion; $4.9 billion) bid for EMI accounted for almost a third of this total. The bid secured financing before August, when the extent of the liquidity problems in the debt markets became apparent. Meanwhile, the mid-market – defined as €160 million to €1.65 billion – rose in both number and volume of transactions, from 41 deals to 49 and from €23 billion to €26.5 billion respectively. The figures appeared to confirm the belief that the mid-market would be well placed to ride out the credit crunch.

EXTRA FUNDING DEMAND SINKS SAINSBURY'S BID
Investment firm Three Delta has called off its bid for UK supermarket chain Sainsbury's after its backer the Qatari Investment Authority decided against funding a £500 million (€720 million; $1 billion) increase in the amount of equity required. On 26 October Three Delta returned to the QIA to find an extra £500 million of equity, to increase its bid to £5.35 billion of equity and £9.6 billion of debt. The firm had initially looked to bid with £3.6 billion of equity at the pre-due diligence stage, while still paying £6.00 per share for the company. The change in the cost of capital due to the deterioration of the credit markets affected the investment case, the firm said in a statement. Extra funding needed to appease the Sainsbury pension trustees was also a reason to withdraw its bid, it said. Three Delta continues to hold a 25 percent stake in the company following the deal's collapse. The withdrawn bid comes in the same year a CVC Capital Partners-led consortium also pulled out of talks in April with Sainsbury's. The consortium included US firms Blackstone Group, Kohlberg Kravis Roberts and TPG.

PARTIAL FLOAT DELIVERS STRONG RETURN FOR WENDEL
French investment company Wendel Investissement has floated 27 percent of industry standards consultancy Bureau Veritas for €1.05 billion ($1.49 billion), according to a statement. Bureau Veritas advises companies on how to comply with health and safety regulation as well as environmental and social responsibility laws. The float was more than ten times oversubscribed. The investment company sold 27.7 million shares at €37.75 per share. The firm said in a statement it has made a six times return on its original stake and a 46 percent internal rate of return on its investment since 2004. Wendel bought a minority stake in 1995 for an undisclosed sum and then bought nearly all shares in the company in 2004, according to a Bureau Veritas spokesman. Wendel still holds a 67.6 percent stake in Bureau Veritas. Minority shareholders, employees and management hold a 5.4 percent stake.

CINVEN BUYS NORDIC SERVICE PROVIDER FROM 3I
London-based buyout firm Cinven has bought service provider Coor Service Management from London-listed private equity firm 3i for around €540 million ($781 million), according to a statement. The enterprise value was 17.5 times EBITDA, according to a source close to the deal. Coor helps manage, develop and streamline offices, properties and factories across the Nordic region. It has doubled in turnover, profits and staff since 3i bought the company in 2004 from construction company Skanska for Skr1.25 billion (€135 million; $195 million). The latest deal is just above Cinven's minimum stated enterprise value of €500 million for target companies. Cinven's prior transaction was the acquisition of independent healthcare operator USP Hospitales from Spanish mid-market buyout firm Mercapital for €675 million in late July.

VCS MAKE 4.4X CASH FROM OUTSOURCING FIRM
UK venture capital firms Octopus Private Equity and Foresight Group have sold outsourcing company Covion Holdings for £33 million (€47 million; $68 million) to engineering and construction group Balfour Beatty. The investors achieved an 84 percent internal rate of return, representing a 4.4 times cash return, over two and a half years. Covion manages facilities for businesses which outsource tasks such as security, catering and cleaning. The firm posted compound profit growth of 112 percent during the last four years making it one of the fastest growing companies in the UK, Octopus said in a statement. By the end of the year, it is expected to have a turnover of £33 million. Foresight invested £2.5 million and Octopus £1.3 million for their controlling minority stakes in the company in May 2005.