Terra Firma makes biggest post-EMI investment

Less than a year after The Blackstone Group was roundly blamed – somewhat unfairly – for the troubles at former portfolio company Southern Cross, Terra Firma has acquired another care homes group, Four Seasons Health Care, for £825m.

Terra Firma Capital Partners has paid £825 million (€1 billion; $1.3 billion) for Four Seasons Health Care, the UK’s largest care home provider following the collapse of Southern Cross last year.

The deal represents Terra Firma’s biggest investment since it lost control of iconic music publisher EMI last year. Despite the fallout from that deal – it was forced to write off its entire £1.6 billion investment in EMI – the firm has chosen to taken on another emotive investment.

Four Seasons’ debt has been very substantially reduced and Terra Firma has brought stability to the company

Guy Hands, Terra Firma

When Southern Cross collapsed last year after failing to meet rental costs and debt repayments, its previous owners, The Blackstone Group, drew considerable opprobrium for perceived financial mismanagement of the business, despite having exited its investment in the company four years earlier. The US buyout group argued the company had been in robust health at that stage.

The issue was also politicised by the leader of the UK opposition, who attacked private equity executives, saying: “They may not have sold their own grandmothers to make a fast-buck, but they certainly sold yours.”

For Terra Firma to enter the care homes sector therefore represents a bullish move, particularly given the size of the investment. However, unlike Southern Cross which underwent a programme of sale and leaseback, Four Seasons owns most of its 445 care homes and 61 specialist care centres, meaning it's less exposed to rental rate changes.

The buyout will be financed using a mixture of equity and debt, Terra Firma said in a statement. The equity component is understood to be around £300 million, with about £525 million of new debt arranged by Goldman Sachs and Barclays.

The company had been labouring under a substantial debt burden, and confirmed in early April that it was in talks with its owners – including Royal Bank of Scotland – over a debt restructuring.

Guy Hands, Terra Firma’s chairman and chief investment officer, said in a statement:  “By investing new equity, Four Seasons’ debt has been very substantially reduced and Terra Firma has brought stability to the company. 

“Terra Firma is committed to further investment in the business in order to achieve long-term sustainable growth.  Our number one priority is to ensure that Four Seasons delivers consistent high-quality care and peace of mind for residents, service users and their families. Four Seasons, with a stable capital structure and clear ownership, will be able to lead the sector in terms of quality of service,” he added.

Rothschild, Deutsche Bank and Gleacher Shacklock advised Four Seasons on the deal, while Barclays and Goldman advised Terra Firma.