Guy Hands Said to Explore Modifying Fund to Gain Cash

  • Terra Firma chairman looking for new investors for Fund III
  • Firm hired Sainsbury's Justin King as vice-chairman this month

Guy Hands, the founder of U.K. buyout group Terra Firma Capital Partners, is looking into modifying the firm’s 2007 fund to allow existing investors to cash out and to bring in new cash, people with knowledge of the matter said.

Terra Firma would allow existing investors to cash out, likely at a discount to the sum originally committed, paving the way for new backers who could be asked to commit to new funds, said the people, who asked not to be identified because the information is private. Hands, 56, is working with Credit Suisse Group AG on the effort, the people said.

No existing investor would be obligated to exit the fund, nor would any
incoming backer be obliged to commit capital to any subsequent Terra Firma
fund, should a liquidity option be offered, one person said. No final decisions have been made and the buyout firm may decide not to proceed with the process, the person said.

The firm is one of several to look at using the secondaries market to explore ways of either raising new capital or extending the time it can hold investments. JC Flowers & Co. and Doughty Hanson & Co. have each hired Credit Suisse in the past 12 months to examine the feasibility of a fund restructuring, people familiar with the matter have said.

The third Terra Firma pool, which closed on 5.3 billion euros ($5.9 billion) in 2007, contained part of the buyout firm’s investment in music publisher EMI Group Ltd., which resulted in a 1.7 billion pound ($2.6 billion) loss when lender Citigroup Inc. seized control of the company in 2011. As a result the fund is still valued at less than 70 percent of investors’ original commitments, according to data compiled by Bloomberg.

Deal by Deal

Hands, who said in July that he had postponed plans to raise a traditional private-equity fund in favor of deal-by-deal investments with selected co-investors, is nevertheless looking to raise both new buyout and infrastructure pools, said the people familiar with the firm’s plans. Terra Firma hasn’t yet done any transactions under the deal-by-deal model.

The firm named Justin King, former chief executive officer of U.K. grocer Sainsbury Plc, as vice chairman and head of portfolio businesses earlier this month.

Fund III, in which Hands and fellow staff invested 400 million euros, contains stakes in companies including Four Seasons Health Care Group and Wyevale Garden Centres, according to the company’s website.

Spokesmen for Terra Firma and Credit Suisse declined to comment.

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