Goldman picks up Terra Firma stakes

GSAM has agreed to buy around $200m worth of stakes in Terra Firma's 2007 fund, famous for its EMI investment.

Goldman Sachs Asset Management (GSAM) has emerged as the backer of the tender offer on Terra Firma Capital Partners‘ 2007 fund, Secondaries Investor has learned.

GSAM has agreed to purchase around $200 million worth of stakes in Terra Firma Capital Partners III in a process run by Credit Suisse, according to two sources familiar with the transaction. The deal is expected to close in February.

Terra Firma will itself also purchase stakes in the fund. Secondaries Investor previously reported that the firm would buy 10 percent of the total stakes LPs agree to sell and would pay the same price as other buyers.

The number of limited partners that decided to sell their interests in the €5.4 billion buyout fund was in the double digits and the process ran smoothly with LPs responding logically to the offer, according to one of the sources.

Financial News first wrote that GSAM had agreed to buy stakes in the deal.

Last December, Terra Firma chairman and chief executive Guy Hands said the firm was looking to reduce its 190 LPs to 20.

“The less investors we have in a fund, the more successful the fund has been,” Hands said, speaking at sister publication Private Funds Management‘s Investor Relations & Communications Forum: Europe conference in London. “Once you go beyond 20 [investors], it’s very difficult.”

One of Terra Firma III’s biggest investments was the 2007 purchase of music company EMI Group. The firm lost about £1.75 billion ($2.5 billion; €2.3 billion) of equity through the £4.5 billion deal when Citigroup, which had provided loans to fund the buyout, seized the company after Terra Firma defaulted on the loan.

General partners are increasingly using the secondaries market to offer liquidity to existing investors or to aid fundraising through staple deals. New York buyout firm Kelso & Co recently closed a tender offer process in which Ardian paid par to net asset value (NAV) for around $250 million worth of stakes in the firm’s eighth fund.

Terra Firma and Credit Suisse declined to comment. GSAM did not return a request for comment.