Terra Firma, the private equity group launched by former Normura principal finance supremo Guy Hands, has announced its first investment. The group, which is currently raising capital for its first private equity fund, has agreed to acquire 42,000 flats for a price valuing the assets at E1.9bn.
The deal is reminiscent of Nomura’s 2001 purchase, orchestrated by Hands, of 64,000 railway workers flats in Germany for E2.1bn. A significant proportion of the properties, managed by Deutsche Annington, were subsequently sold to tenants, an exercise that Terra Firma will be looking to repeat with the Cologne assets.
Under the deal, Terra Firma is buying the City of Cologne’s 68.8 per cent stake in GAG Immobilien, a property manager listed on the Frankfurt and Düsseldorf stock exchanges, and another 10 per cent of GAG’s equity that is currently owned by Cologne City Savings Bank.
Hands, who is paying E600m in cash and assuming E1.3bn in debt, is also expected to bid for GAG’s remaining shares held by institutional and private investors. To finance the deal, Terra Firma is working with Landesbank Hessen-Thüringen, which also funded the Deutsche Annington railway workers flats deal last year. LHT is providing E300m, with Terra Firma's first fund committing another E300m to the transaction.
The deal was led by David Pascal, head of Terra Firma's German operation. 'It's a complicated asset-backed transaction, but our business plan isn't very complicated. Similar to the Annington deal, the main economic opportunity for us is to sell a significant portion of the non-subsidised flats to tenants. We think we can help create a level of momentum in the German home owning market that hasn't been seen before.'
The transaction, which is subject to regulatory approval, is likely to give Terra Firma a boost on the fundraising trail, which it has been pounding for over a year. In November, the firm held a E1bn first closing on a planned E3bn private equity fund. A final close is expected in June next year.