Guy Hands grabs care home group in £825m deal

The purchase of Four Seasons marks a comeback for the Terra Firma boss following his debacle over record label EMI

It is about as far away from rock'n'roll as you can get. Guy Hands, the Terra Firma private equity boss who bought record label EMI for £3.2m in 2007 and lost all that money, has just purchased Britain's biggest care homes group, Four Seasons, for up to £825m.

Some might assume Terra Firma investors would have – pardon the pun – washed their hands of him after the EMI saga and his legal defeat against his lenders Citigroup in 2010.

But his Terra Firma III fund, which lost fully 30 per cent of its cash on the ill-fated EMI purchase, is behind the Four Seasons deal.

This is Mr Hands' second major purchase in a month after his private equity firm bought the Garden Centre Group for £276m. Last year, he pulled off another significant acquisition when he bought Italian solar energy business RTR for €264m (£215m).

Mr Hands, who set up Terra Firma in 2002, is determined to make a comeback – even if he has a long way to go before he can restore his reputation.

"Terra Firma's track record has been hugely hit by EMI," admitted a source close to Mr Hands. "But if you took out EMI, Terra Firma's track record is as good as anybody's."

That's a reference to the private equity firm's portfolio which includes decent businesses ranging from Odeon Cinemas to renewable energy. Add in care homes and garden centres and it's apparent that Mr Hands wants to minimise risk at all costs.

The Four Seasons deal looks reasonably attractive, even if it has already provoked the ire of the unions.

The care homes group is a classic tale of the credit crunch – not unlike EMI. Qatari-backed investment firm Three Delta bought Four Seasons for £1.4bn in 2006 but its finances collapsed under the weight of its debt and Royal Bank of Scotland seized control.

Now RBS, which has since written off a huge amount of Four Seasons' debt, has off-loaded it to Terra Firma, while keeping a minority stake for the bank in a debt-for-equity swap.

The private sector has a decidedly mixed record when it comes to investing in the care homes sector, after a string of collapses, most notably Southern Cross.

Mr Hands says he is "committed to further investment" in Four Seasons, which owns 445 care homes and 61 specialist care centres around the UK.

"Our No 1 priority is to ensure that Four Seasons delivers consistent, high-quality care and peace of mind for residents," he declared.

The problem for Mr Hands, whose best man at his wedding was Tory Foreign Secretary William Hague, is that his reputation precedes him. Union leaders have already raised fears about cuts at Four Seasons.

Justin Bowden, GMB National Officer for care staff, has demanded reassurance from both Terra Firma and ministers that there will be "no risk of another EMI-style debacle".

He added: "Residents, their families and staff will want to know how the financial numbers stack up and how the unsustainable debts get refinanced."

Mr Hands insists that Four Seasons has "a stable capital structure and clear ownership", and he notes the purchase has been backed by Goldman Sachs and RBS, who have arranged the debt.

However, no one should be fooled into thinking that just because Mr Hands has been able to go on the acquisition trail that he has been using new money. He is buying Four Seasons with some of the €5.4bn that was raised by the Terra Firma III fund way back in 2007. His private equity firm has not launched another fund since.

There is a widespread belief in the City that Mr Hands would struggle to raise another fund, prompting reports that he might look to sovereign wealth for his next round of investment. The Terra Firma camp plays down such talk.

Those close to Mr Hands do acknowledge that he has to do things differently. Never again will Terra Firma invest as much as 30 per cent of one fund in a single investment. Now the maximum is closer to 15 per cent.

Mr Hands remains a figure of fascination because he has enjoyed both great highs and lows.

In a speech to private equity conference Super Return in February, he insisted that people work in the sector because "they love transforming businesses, not just making money". But the truth is that money matters a great deal to Mr Hands, who has been a tax exile in Guernsey since 2009.

Friends say he has no intention of returning, which means that he won't be able to visit any Four Seasons care home, because they all based in the UK.

It takes a certain kind of investor to want to buy something without ever having face-to-face contact with their new purchase. No wonder some people remain wary about how much Mr Hands really cares.

Troubled: Equity link

Private equity has a troubled history with the care home sector.

When Southern Cross collapsed at the end of last year, industry insiders blamed its demise on Blackstone, the buyout giant that heavily leveraged the care group, and set up a sale and leaseback business model.

The Priory, the mental health and addiction clinic operator, was sold by RBS to private equity house Advent International last January.

Advent also bought Craegmoor, which cares for more than 3,000 elderly adults and people with mental health problems, in 2008.

Lucy Tobin