REFILE-Terra Firma to launch new 2 billion euro buyout fund -sources

Tue Feb 25, 2014 3:02pm EST

BERLIN Feb 25 (Reuters) - British buyout group Terra Firma will shortly launch a 2 billion euro ($2.75 billion) general private equity fund, two people familiar with the matter said.

The fund will take the size of Terra Firma's endeavour nearer to its roots following ill-fated larger ambitions at the height of the buyout boom.

Terra Firma, controlled by British financier Guy Hands, will start fundraising in May. The new fund will target deals with equity cheques of 750 million euros, half of which will be supplied by the fund and half from co-investors, sources said.

Terra Firma has done more than 30 transactions in the last 20 years and its smaller deals have generally been more successful, one of the people said, adding: "Leverage tends to be lower in smaller deals and it is easier to change those businesses."

Terra Firma declined to comment.

In 2004, Terra Firma raised a 2.1 billion euro fund, which invested among others in German motor services group Tank & Rast, which it recently refinanced. That fund also acquired cinema operator Odeon & UCI, which it unsuccessfully tried to sell in 2011.

The firm's 5.4 billion euro fund raised in 2007, however, included a disastrous investment: the 6-billion-euro acquisition of music group EMI, which Terra Firma later handed back to Citigroup after defaulting on some loans.

Hands claims a Citigroup banker induced him to overpay for EMI at the height of the buyout bubble by falsely telling him a high bid was needed to top a rival bidder.

He has sued the bank, which has denied wrongdoing, but it remains unclear if the trial will start this summer.

In a special fund established in 2006 Terra Firma holds German real estate group Deutsche Annington, of which it listed a stake on the stock exchange last summer. The share has risen nearly 14 percent since the flotation.

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