Terra Firma now targeting E2bn

Terra Firma chief Guy Hands believes the uncertain economic climate may result in the firm’s debut fund falling E1bn short of its original E3bn target.

Terra Firma Capital Partners, the UK-based private equity firm headed by Guy Hands, is struggling to hit the E3bn target provisionally set for the firm’s first independent fund as a result of investors' growing reticence to commit to funds in the current volatile environment.

 

In an interview with Bloomberg today, Guy Hands said that the Iraq war is having a major impact on fundraising, adding that any figure above E2bn would be an ‘incredible achievement’ in these conditions. “The Gulf war is making it incredibly tough to raise money.”

 

Speaking at a conference in London, Hands said that the firm had so far raised around half of the mooted E3bn. Investors already in the fund include Adams Street Partners, Citigroup, GE Structured Finance, NIB Capital Private Equity and three public sector investors, one in the US and two in Asia. The Canada Pension Plan Investment Board has also contributed around E150m to the fund.

 

The firm has suffered a number of setbacks since announcing plans to launch a new fund in 2001, most recent of which was the collapse of a deal to acquire E1.9bn portfolio of social housing in Cologne, a victim of internal politics in the German city. As a result, the firm is yet to complete a deal from this first fund, called Terra Firma Capital Partners II, despite holding a E1bn first close in November.

 

Speaking today about the Cologne deal, Hands said: “It's possible the apartments will be put up for sale again if the city's deficit worsens. We are working on the assumption that the assets won't be back until the next election.”

 

The firm is currently in the running to acquire Northumbrian Water, the UK-based utilities business owned by French water group Suez. The firm approached Suez with a £2bn offer for Northumbria, although speaking to Bloomberg today, Hands said it was unlikely to pursue the offer.

 

Terra Firma is competing with a number of big-ticket buyout firms currently, or about to start, fundraising. Charterhouse Development Capital is on the way to securing E3bn, following a E2bn second close in December. Permira, Doughty Hanson, PAI and Texas Pacific, have also recently announced plans to launch multi-billion euro funds.