Terra Firma set for first deals

Guy Hands' first fund post-Nomura has raised E1bn at first closing, with 10 per cent coming from the firm and its employees.

Terra Firma Partners, the UK-based buyout firm led by Guy Hands, has held a E1bn first close on the way to what it hopes will be a E3bn final close for its inaugural fund since Hands left Nomura International.

 

The fund, Terra Firma Capital Partners II LP, is one of the largest first time buyout funds ever raised, and has received commitments from 30 investors, including Nomura, which has agreed to provide ten per cent of the fund’s total capital. Other notable investors 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 also contributed around E150m to the fund.

 

Hands has committed E10m of his own capital to the fund, with a further E20m to be invested across the fund’s second and final closings, expected in February and mid 2003 respectively. Company employees have also committed funds of approximately E90m.

 

Media interest in Hands, who earned many millions personally whilst heading Nomura Principal Finance, has meant that the progress of the fund raising has been watched closely. That, alongside  changing perceptions towards investment in private equity and a number of competing European large buyout funds also wanting to raise billions at present (including Charterhouse and Doughty Hanson), has encouraged considerable debate as to whether this first close has been a success or not.

 

“Despite the challenging market environment, we have already spoken to investors who are keen to invest in the second round,” said a Terra Firma spokesperson. “The market is slower but we are quietly confident of reaching our original targets.” Merrill Lynch and Salomon Smith Barney are the placement agents for the fund.

 

The first close will enable the firm to commence its investment programme, seeking opportunities amongst what Terra Firma describes as companies that are large, low growth and out-of-favour and do not rely on market appreciation or IPO exits to achieve profits. Whilst at Nomura, Hands made a speciality of undertaking extensive research in order to uncover lowly valued operations with robust cashflows that could bear significantly increased financial leverage and engineering (he was an early exponent of asset securitisation). Notable transactions included the creation of UK railway rolling stock company Angel Trains, the acquisition of  the Le Meridien hotel chain and enough pubs to make him at one time the UK’s largest landlord.