Guy Hands’ View

The Sunday Times recently published its Profit Track 100, a league table ranking the 100 British firms with the fastest-growing profits in the last three years. The list reveals a few interesting facts about these fast-growing firms: they are typically medium-sized, managed by founders or family directors and have between 100 and 1,000 employees. The most notable figure for me, though, is that approximately 25% of the companies ranked have private equity backing.

While this may come as a surprise to those with a stereotypically negative impression of private equity, it makes perfect sense to us at Terra Firma. Though the industry does not always enjoy the best reputation, the notable presence of private equity-backed firms on the Profit Track 100 list demonstrates the industry’s success in building profitable businesses, which are critical for economic recovery. At Terra Firma, we concentrate on what we do best, which is to create value by fundamentally transforming businesses.

Two of the key methods we employ to do this are investing in capital expenditure and pursuing acquisitions, both of which can contribute to business and profit growth. In addition, private equity firms such as Terra Firma provide a long-term source of capital, enabling businesses to pursue longer-term growth strategies.

Number 48 on the Profit Track 100 is Infinis, a Terra Firma portfolio business. Infinis was formed in a spin-out of the biogas division of Terra Firma’s waste disposal business, WRG, in 2006. Over the past seven years, Terra Firma has built Infinis from a spin-off of a non-core division into the UK’s top independent renewable energy generator, increasing profits more than tenfold along the way. This success is a testament to private equity’s ability to support growth over the long term, especially in emerging sectors such as green energy.

Also featured in the Profit Track 100 at number 5 is The Garden Centre Group, a business that Terra Firma acquired last year. The business has shown impressive profit growth over the last three years, and we are now actively pursuing a strategy that is forecast to further improve the growth trend in the years to come.

As strong economic recovery in the UK continues to be elusive, we hope to see further evidence, through measures such as the Profit Track 100, of the benefits that private equity can bring to businesses. The industry has a critical role to play in building successful companies and investing in those companies to help drive growth.

The global financial system has been transformed over the last couple of decades. Beginning in the 1980s, a wave of deregulatory reforms reshaped the markets along the lines of laissez-faire philosophy. This liberal approach to regulation paved the way for the unforeseen interdependence of financial institutions and resulted in global banking consolidation.

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Today’s world is very different from the pre-2007 world of consensus, market economy based politics. Investors are adjusting to a new reality. They are recognising that, despite stagnant economic conditions, the best GPs are still driving real returns. They are becoming less distracted by the chaotic politics in countries across Europe. Read more.

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After five very tough years, I look back on 2012 with huge satisfaction as the year Terra Firma got its mojo back. However, on a macroeconomic level, the end of 2012 still sees the eurozone dealing with the political and economic problems which have confronted it for the last five years.
 

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The manoeuvrings in Washington over the fiscal cliff are being viewed with a mixture of disbelief or outright distaste by non-Americans. With the stakes so high, there is genuine bewilderment at the daily twists and turns of the negotiations, the backroom dealing and the brinkmanship. Read more.

It was not, of course, Mitt Romney’s association with private equity which sank his bid for the US Presidency. The seed of his failure was his inability to make voters believe he shared their concerns and ambitions. In the crucial test of whom they felt most comfortable managing the US economy, US citizens decided they wanted to stick with President Obama.

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Who will own Europe’s growing installed base of renewable energy assets in the future? Will it be incumbent utilities trying to diversify their risk away from carbon-based generation…or financial investors searching for yield? Read more.

There are two interpretations about what is happening in the Eurozone at present.  They stem from different philosophies: the Anglo Saxon (British and American) media see political dithering and looming disaster; by contrast the Continental media (particularly Germany and France) see evidence of the necessary, steady but painful progress towards European integration. Read more.