Guy Hands. Remember him? Oh go on. What a guy. Well, what a Guy. He’s called Guy. Plus I know quite a few former EMI execs who’d gladly thrown him on a bonfire.
Anyway, he was the boss of equity group Terra Firma, the dude who threw a few billion away acquiring the British music major, before sacking everyone, saddling the company with impossible debts, and then suing the bank that all the money was owed to in a disagreement over biscuits. Well, it’s possible I’ve mixed some of that up.
But whatever, Hands, has been chatting rather candidly about his short-lived dabblings with the music business, now happy in the knowledge that the EMI debacle – which, to be fair, was a rare if high profile screw-up for the Terra Firma business – is well and truly behind him. And other Terra Firma investments have been doing fine thank you very much, notes Hands: “We increased the value of our equity last year by almost double what we lost on EMI”.
But in an interview with Bloomberg, Hands freely admits that he and his team made some major mistakes when acquiring EMI in 2007 in a debt-laden multi-billion deal, though, he reckons, somewhat ironically given the backgrounds of Team Terra Firma (ie mainly City boys), most of the mistakes involved misjudging the state of the financial markets rather than the issues affecting the music rights industry.
Hands tells Bloomberg “our ability to come up with strategy actually was pretty good”, adding that the British major’s market share “went from 9% to 17%” between his purchase in 2007 and when Citigroup sold the company on last year, and “that’s an extraordinary movement in a declining market – so the strategy worked”.
It’s true that the EMI that emerged from the turmoil created by Hands’ arrival, and the axing of a plethora of senior execs at the major, was actually a pretty healthy business, with more joined up senior management and especially interesting developments in the label-services domain, an increasingly important part of any major’s operations. Though whether that was the result of a clever design thought up by Terra Firma twonks in 2007 is debatable.
Hands always seemed to have a good handle on the problems EMI faced, but less of an idea on what the solutions might be, other than instigating the brutal down-sizing that the bloated EMI arguably did need (though possibly not quite so much overnight). And it did seem from the outside that things only properly took shape once Hands, rather late in the day, decided to give EMI Publishing chief Roger Faxon control of the whole company.
But whatever, Hands is right to say the really big problem for EMI was that it owed so much money to one lender, Citigroup, whicho became increasingly reluctant to lessen the draconian terms of the music company’s debts (and who ultimately repossessed EMI and split it up for sale).
And that occurred because of the infamous credit crunch, with radical shifts in the financial markets shortly after the EMI deal was completed in 2007 making it impossible for Hands to spread the load in terms of the music company’s debts, piling on the pressure. And also providing some big PR challenges, it being very simple for journalists, artists and people everywhere to grasp that owing billions to one bank during one of the worst economic crises in history is a bit of a problem.
Hands says he got it “completely wrong” when it came to predicting “what would happen in the financial markets”. And on that front, many lessons have been learned, he told the business news channel: “Always take a ten-year view on any transaction, don’t get saddled with massive debts to single lenders, and always ensure diversity in your wider portfolio. He concludes: “We’ve learned some very expensive lessons, we’ve been through a pretty severe whipping, but we’ve come out the other side”.
EMI, meanwhile, basically ceased to exist last year, though it’s name will live on via various regional labels within the Universal Music empire and as a unit of the Sony/ATV publishing business, while the major’s iconic Parlophone brand will become part of Warner (regulator approval pending).
