UK buyout firm Terra Firma’s founder Guy Hands has reportedly said in a conference that bankers are “whimpering dogs” and they will refuse to fund “mega buyouts” for years, according to UK newspaper Financial Times.
Hands, formerly of US bank Goldman Sachs and Japanese bank Nomura, said bankers were happy “in a pack” and liked “to smell easy prey and push each other out of the way for food”.
Referring to bankers’ reaction to the credit crunch, Hands said: “like any loyal dogs when they get hit they whimper”. He described the period before this summer’s credit crunch as “a bygone era”.
Bankers have now returned to their baskets, he said. “They won’t come out of their baskets easily. We will have to entice them out.”
US bank Citi reportedly threatened to rejig the terms of Hands’ £2.4 billion (€3.4 billion; $4.9 billion) bid for music group EMI, completed in August, if it did not achieve the necessary 90 percent acceptance to be declared unconditional, according to media reports. However, given Terra Firma received 90.3 percent acceptance from EMI shareholders it was able to complete its bid with a debt package fully financed before the problems in the debt markets became apparent.
Private equity now has one advantage left after the credit crunch, which is its ability to increase earnings, Hands said. Two advantages it had in the time of easy credit have disappeared.
“We buy stuff with cheap debt and arbitrage on the difference with equity markets. That is gone. We buy stuff at one multiple and see multiples go up. That is gone.”
Even private equity’s ability to increase earnings is in doubt. Hands said it would be interesting to see the change in this, “if the real economy starts to be affected.”
Hands also said distressed investors would have investment opportunities in two to three years from over-leveraged buyouts facing their first debt repayments.