In June last year, Terra Firma dropped a £1.5bn lawsuit against Citi over the acquisition of EMI. It is reported that Guy took a €200m (£168m) hit to his personal fortune as a result of the deal.
The Terra Firma boss alleged that Citi misled him into overpaying for the music publisher in 2007.
How’s he coping after the multi-million pound loss? “I’ve moved on,” he tells City A.M. And indeed he has. In what was the biggest post-Brexit deal in the UK last year, Terra Firma sold Odeon and UCI Cinemas to US cinema chain AMC Entertainment for around £921m in July.
The City high flyer started 2017 with a happy deal chowing down McDonald’s 435 Nordic restaurants for an undisclosed amount.
Hands is somewhat of a poster boy for the venture capital industry. From trains to pubs to hotels, he’s made big deals across many sectors. He introduced the concept of using securitised debt to finance acquisitions in the UK and branded it the “crack cocaine of the financial services industry” after financial firms copied his strategy.
Since 1994, Terra Firma has invested over €16bn in 34 businesses with an aggregate enterprise value of over €48bn. However, profits dropped to £1.84m in the 12 months to March 31, 2015 – the lowest figure since 2012.
Hands’ ultimate ambition with Terra Firma is to create a “legacy business”. This year he’s weighing up more takeover prospects including lingerie chain Agent Provocateur. He likens the EU referendum to “turkeys voting for Christmas” but feels Brexit will bring him more bang for his buck.
Educated at Oxford, the 57-year-old “hated every single day at secondary school” because of his severe dyslexia.
“Dyslexia means I don’t want information given to me in more than two sides, it just takes me too long to read.”
Hands began his career at Goldman Sachs earning a telephone-number salary as its head of Eurobond trading. But he was disappointed after the banking giant turned down his business plan in the early nineties.
“In 1994, I put forward a business plan to Goldman Sachs to set up a principal finance business which would take positions in businesses having problems raising liquidity. Goldman said no and I didn’t quite know what to do.”
Hands then played the field to find backers for his concept.
“Ironically, Citigroup offered me a job to run their European capital markets,” he recalls. “It would’ve been an extraordinary job paying an extraordinary amount of money.”
However, Hands joined Japanese bank Nomura to set up its Principal Finance Group (PFG) earning “roughly a twentieth” what he was making at Goldman.
In what was the first major entry of a financial buyer into the UK pub sector, Hands led the acquisition of Phoenix Inns in 1995.
In 2002, PFG spun out as Terra Firma.
“We negotiated the leaving in August 2001 and then 9/11 happened. My team felt I should re-negotiate with Nomura as fundraising would become much more difficult post the attacks. But I decided it was inappropriate to re-negotiate and the net result was 85 per cent of my senior staff left over the next two years.”
Hands admits he’s not a delight to work with because he’s brutal with eliminating any rotten teeth a business might have.
“People sometimes find it difficult to work with me as quite often I will strip everything back to the bare bones, questioning everything. While this is quite cathartic, it is difficult to experience.
“A lot of them find it emotionally difficult because I’m stripping apart their baby.”
Quiz him about his worst investment decisions and Hands says they’ve all been down to “misjudging people”.
Changing Four Seasons
Hands is constantly under the scanner for the loss-making Four Seasons, Britain’s biggest care home operator. For the year to December 31 2015, operating losses deepened to £263.6m from £70.1m in 2014.
The legendary financier blames the poor performance on Britain’s ageing population.
“Like the whole health industry the issue we have is that the patients and residents are completely different from patients 10 years ago. Increasingly in the NHS, rising costs are almost totally down to ageing population. Nursing costs are higher as residents in our homes are much older.”
Speaking about why he bought the business in 2012, Guy said: “We believed that the Conservative party coalition in power would increase provision of money to elderly care in line with increase in costs. Our business plan was aligned to that.
“The reality is that revenues have been increased less than costs. Same problem as everyone. At end of the day, we will do the absolutely best we can.”
Hands on lingerie
Next we talk about Hands’ interest in lingerie chain Agent Provocateur. While he confirms his interest in the brand, he remains tight-lipped about any imminent deal.
“Agent Provocateur is a totally iconic British brand. Obviously, retailing is something [vice chairman] Justin [King] has extraordinary experience in. So, we wouldn’t deny we had a look at it.”
While much of the country frets and sweats over Brexit, Hands says the referendum result has created opportunities for his business.
“Brexit has thrown all the balls up in the air. It doesn’t matter what your business is, it’s going to be affected by Brexit. But what our business does is it takes advantage of change. Most people are uncomfortable with change, they get scared by it. We have a business that is built on analysing change and dealing with it.”
However, Terra Firma has cut starting salaries for those joining its graduate programme to £35,000 and has scrapped cash bonuses for them too.
Hands doesn’t blame this on Terra Firma’s profit dip but instead says he wants people with a “long-term view”.
“We have paid several hundred million in some very big bonuses to very talented people and they just left. One of them is running a farm and another is sailing around the world, which is all great but it doesn’t help me build the business.”
Building the business is a phrase Hands repeats many times during the interview. This ambition keeps him awake at night too, he admits.
“My view of life is a strange mixture between incredible belief in what can be done and incredible worry about what could go wrong,” he says.
The private equity veteran is approaching 60 – is retirement on the cards? “I have no plans to retire,” he says defiantly. “I want to create a business that has a legacy, that’s the main aim.”