HANDS TO PAPER

Our latest acquisition, that of EMI, is a great example of a quintessentially Terra Firma deal. EMI draws on Terra Firma’s full experience in strategically transforming businesses, repositioning assets, driving operational change, and growing and stabilizing cash flows in an industry that is out of favor. It has all the attributes of a Terra Firma transaction:

• Asset-rich business Publishing and Recorded Music catalogues;
• Industry in transformation Impact of market change on consumer and artist behavior;
• Potential for consolidation Acquisition of assets from other market participants;
• Potential for greater efficiency Ability to use technology to reduce the cost base; and
• Opportunity for strong financing An attractive initial financing package that took advantage of the pricing and terms that were available at the time and which provides the flexibility needed for Terra Firma’s planned changes.

Terra Firma plans to add value in many ways, including:

• Bringing focus Making the people in the business understand what it is they are supposed to be doing, that is, that they are there to serve the customer and the artist and not to try and be or act like artists themselves;
• Driving operational change Forcing the business to simplify its operations, reduce costs and start making decisions based on sound financial judgements;
• Repositioning Recorded Music Helping Recorded Music tackle the B2B and consumer digital opportunity/challenge;
• Exploiting assets Moving the prioritization of the exploitation of the catalog from the bottom of the pile to the top; and
• Intervening Changing the culture and displaying leadership where previously there was little and, what little there was, was confused.

These changes will not be easy and will require both extensive effort and resources. We are driving these value-added changes by putting approximately 45 people, both from Terra Firma and outside our firm, into the business. This total includes three seconded MDs, and I have taken on the role of non-executive Chairman.

There is no doubt that EMI is a tremendous challenge, but it is also a huge opportunity and our success or failure will not be correlated to the markets, but to our ability to effect change, quickly and decisively. It is this type of deal that Terra Firma focuses on and from which it makes money.

But, EMI is a done deal, so going forward, what type of deal should Terra Firma do? You won’t be surprised to hear me say, more of the same. Our contrarian interventionist strategy focuses on assets that need transformation in how they are managed and is well suited to making money in more challenging environments such as that which we now face.

Terra Firma intends to focus on the same type of deals that we have always done. Having been formed in recession, we are not frightened or dismayed about the times ahead and feel that we are well-positioned to take advantage of the opportunities that will be presented in this changed environment. It will not be easy, but I believe it will be profitable for all of us.

Best wishes
Guy Hands
CEO, Terra Firma