Terra Firma to launch €2bn fund in May

The Guy Hands-led firm will target less than half the amount it collected for its €5.38bn 2007-fund.

Terra Firma Capital Partners is planning to raise another private equity fund this year, according to a source familiar with the matter.

The vehicle – the Guy Hands-led firm’s fourth buyout fund – will have a €2 billion target and will come to market in May, the source said.

Terra Firma declined to comment on fundraising.

However, it is understood that the fund will primarily target investments in Europe, although it will have the ability to invest globally. It will look to write equity cheques of about €750 million per deal, with between €300 million and €350 million coming from the new vehicle, and the remainder from co-investors, according to the source.

At the SuperReturn conference in Berlin on Wednesday, Hands told delegates that there was a “compelling opportunity” to invest in Europe right now, with “the possibility of active returns for GPs with the right strategies … That is to focus on cash-starved companies, that have been neglected during years of recession and tight credit, which are now in need of new strategies and direction.”

“Banks will increasingly dispose of the bad loans to zombie companies that they have been holding on their balance sheets, while corporates are focusing on their core business, which will also lead to disposals, and governments are selling assets to reduce debt levels,” he added.

The target for Terra Firma’s new fund will be less than half the size of the firm’s current Fund III, a €5.38 billion 2007-vintage. This fund is fully invested, although it has room to make add-on acquisitions, Terra Firma’s chief executive officer Tim Pryce told Private Equity International in December.

When asked whether Terra Firma was ready to raise a new fund yet, Pryce said at the time: “Two years ago I said that what we really needed to focus on was realising the value that we have created in our existing portfolios. We have delivered this after returning over €2 billion to our investors across our portfolios [over the past few years]. With the new investments [in] Four Seasons Health Care and
The Garden Centre Group, [and by] raising our first new capital since 2007 with our special opportunities fund, we are moving in the right direction.”

Last year Terra Firma divested three businesses fully or in part, including Deutsche Annington, Infinis and Phoenix. It also completed a €2.1 billion refinancing for Tank & Rast, a German motorway service station business.

As well as preparing to raise a new buyout fund, Terra Firma is in market to raise a renewable energy fund, which is targeting €2 billion, with a hard-cap of €3 billion. The vehicle was expected to hold a first close of between €700 million and €1 billion in March, but it is understood this will now be pushed back after the removal of Damian Darragh earlier this month. Darragh, a financial managing director, was involved in the fundraising process for this strategy. He had been with Terra Firma for more than 20 years.