Delta Two this week balked at the level of equity required to complete big European LBOs in the new credit-crunched environment. At around the same time,
In an internal
“If they had bothered to do a little research, they would have found that in all major private equity deals, equity is sold by private equity managers, to their investors and other private equity firms,” reads the memo. “Indeed, Terra Firma has done this on all previous deals it has done and it is something we proactively market to our investors.”
Given that Terra Firma was prepared to go the extra mile Delta Two wasn’t, and put in the extra equity – a historically well above average £1.5bn alongside £2.5bn of debt, “a substantially higher proportion of its fund in EMI than we are aware any other private equity firm has with any other investment” – it is no surprise that Terra Firma is looking at reworking the private equity model within a new market environment.
Five years ago, Robbie Williams declared “I’m rich beyond my wildest dreams” after signing a new contract that reportedly netted him £80m. There will be no such excesses under Hands. While he has denied that there are no plans for the UK music group to be broken up, there will be substantial restructuring of a business that is already facing significant change.
Big names such as Radiohead (a former EMI act), Prince, The Charlatans and, er, Cliff Richards (with EMI’s approval) have adopted new methods for distributing and making money from their music, including Madonna’s recent departure from long-time label Warner for concert promoter Live Nation.
Unions will call it asset stripping and value destruction if Terra Firma does sell off either the recorded music or distribution divisions and cuts jobs as has been speculated, but Hands is savvy enough to know what is required to deliver ultimate value to his investors – his core responsibility – and save EMI from imploding. If they are assets, they will find buyers. If not, they’re hardly assets.
A refinancing was likely to have been on the cards shortly after deal completion, but with the tightening of the debt markets, recaps are almost entirely off the menu for the foreseeable future. Selling down equity, streamlining and restructuring – Hands has already put Sir John Birt, who carried out an internal reorganisation of the BBC while director general, and a number of other “suits” in charge – may not hit the right notes with private equity’s critics, but should be music to the ears of an industry that has been out of tune for far too long.