Guy Hands, founder and chairman of private equity firm Terra Firma, spoke rather candidly on the missteps he and his firm made in its management of EMI in a video interview posted today on Bloomberg (below). Terra Firma purchased the music company for some $6.3 billion in May 2007 at the height of the credit market and three-and-a-half years later Citigroup took back possession of the label in what amounted to a foreclosure deal.
While Hands, seen here drinking a pint with Bloomberg’s Cristina Alesci and looking infinitely more relaxed than he did a few years ago, freely admits his firm’s failings, but first trumpets Terra Firma's management of EMI. “Our ability to come up with strategy actually was pretty good,” he says, “the music industry today pretty well does what we did with EMI.” Hands goes on to say that EMI’s market share between when they bought EMI and Citigroup sold it “went from 9% to 17% -- that’s an extraordinary movement in a declining market when you default, so the strategy worked.” Hands expresses regret at having to layoff more than 50% of the label’s workforce, though that it would seem was part of the strategy he heralds.
What Hands admits what Terra Firma got “completely wrong” was their “ability to predict what would happen in the financial markets.” He then goes into a litany of lessons learned, including the importance of taking a 10-year view of a transaction, not getting rattled by large debts and the benefits of having a diversified portfolio. All of this he summarizes by saying, “We’ve learned some very expensive lessons, we’ve been through a pretty severe whipping but we’ve come out the other side and we increased the value of our equity last year by almost double what we lost on EMI.”