NHS should take over ALL care homes . . . private firms can’t make a profit
City titan who invested big reveals a painful lesson...
BRITAIN’S best known deal-maker admits a big realisation has dawned on him since Covid struck almost a year ago: he had been dashing around the world unnecessarily. Guy Hands, one of the few high-profile faces of the lucrative and powerful world of private equity, explains: ‘I should’ve spent far more time with my kids, but I spent my time rushing around. I was a busy-bee travelling, boasting that I’d slept three nights a week on planes.
‘I thought I was being really productive but what Covid has allowed me to see is that wasn’t that necessary or useful. What it means is that physical meetings – I’ve only had four since last March – are really important.’
In fact, it was returning from a now rare business trip which almost left him stranded. He was flying back from a visit to a property venture in Cyprus when his adopted Guernsey – home for tax reasons since 2009 – went into lockdown after seven Covid-free months.
‘I convinced them to let me return,’ he says. ‘My wife was halfway through a haircut, she was worried they weren’t going to blow-dry it. My appointment was cancelled,’ he adds, sweeping a hand through his trademark mop.
A large vase of yellow tulips and giant daisies looms on his desk in our Zoom call. He laments they’ll be his last for a while amid local restrictions.
Hands is boss of Terra Firma, the firm he set up in 2002, which has inked billions of pounds in deals, including buying and selling Odeon and William Hill. His disastrous takeover of music label EMI and subsequent legal dogfight with Citigroup blew a £1.75 billion hole in his fund and almost pulled him under. The Covid crisis has hit several of his assets – from restaurants to hotels. And it has highlighted the fragility of a sector he recently bailed out of: care homes.
Hands bought the Four Seasons chain for £825 million in 2012 before losing control to its largest creditor in 2017. Critics have argued private equity firms are too short-termist to invest in care homes.
Hands says the model is ‘broken’ and has reached a stark conclusion: ‘The industry either needs to be nationalised or paid for by the NHS. We just couldn’t give the quality of service in a care home that we wanted to at a price that would enable us to make a profit.
‘ The Government needs to be realistic about what care homes are: the view that people have of nursing homes being where you go to play bridge and sit around and watch TV together is a 1970s view.
‘These are actually places filled with people in their mid-80s suffering serious diseases and physical illness who need constant care.
‘Nursing homes are a cheap way of providing the specialist care that hospitals could. The only way we made money was by charging private patients more because local authorities didn’t pay enough.’
Such strong views from a former titan of the care industry are likely to spark debate about how Britain’s care homes should be funded as the nation emerges from the pandemic with an intense focus on healthcare. Elsewhere, Covid has reinforced Hands’ faith in one of his long-time investment classes: property.
‘The house you need now is different from a year ago. I believe there will be Covid flare-ups and lockdowns for years, so people will have to get used to, at times, working from home, home schooling, and they will need more space for leisure and accept longer commutes.’
So how will he act on this? ‘I think it’s investing in companies that have land banks, have buildings and it’s about how we make those buildings fit for purpose today.’
He won’t be drawn on reports he’s keen to snap up Kier’s £110 million housebuilding arm.
Newly released accounts for Terra Firma Capital Partners, which acts as an operating company for Terra Firma’s collection of investment funds, showed turnover fell 31 per cent to £15.9 million in the year to March 31 compared to 2019, while profits dropped from £2.3 million to £1.5 million. A dividend of £5 million was paid to its parent, ultimately owned by Hands, after two years without a payout.
Hands began his career as a Goldman Sachs bond trader, before moving to Japanese bank Nomura and later setting up Terra Firma. It has been a chaotic year for his varied portfolio which spans Australi an beef production, military housing and modular school buildings. His 19 UK country house hotels he runs with his wife Julia, and German hotel chain Welcome, have been knocked by lockdowns.
Hands also holds the franchise for McDonald’s in the Nordics and – despite pressure from competitors – kept the restaurants open for drive-thru and takeaways. ‘In Sweden they were no less exposed to Covid but the government there said it’s your responsibility to deal with it. A lot of our competitors said, “We can’t operate” but we adapted quickly and that’s the attitude we’re taking with all of our businesses.
‘It’s like with Brexit, there’s no point grieving and being bitter. You have to accept it and adapt.’ Terra Firma’s make-up business, Talika, which was focused on airline and duty free business also faced a Covid crunch. ‘The management adopted some entrepreneurial spirit and quickly did info-commercials focusing on eyebrows and eyelashes, because everyone’s wearing masks and the eye is the new smile, and sales of mascara have rocketed.’
Hands is keen that the Government is as fleet of foot in investing to revive the British economy. ‘Margaret Thatcher talked about Tina – There Is No Alternative – sometimes there is no alternative, we need to spend, spend, spend.
‘ I’m no Corbyn supporter, but [ spending] i s what i s needed. Increasing taxation won’t solve the problem. We do need to increase expenditure on infrastructure, the NHS and education. Otherwise, we’ll have five million unemployed and enter a cycle like the 1960s and 1970s that’s difficult to get out of.’
He says investment is needed in cities which have become ‘expensive, dirty and dangerous’, notably in transport. In the markets, a much anticipated wave of private equity deal-making is now materialising, as companies which held back cash splash out.
It’s sparked a wave of SPACs, or so-called ‘blank cheque’ companies, raising huge sums with no assets. ‘It doesn’t matter whether you look at Spacs, whether it’s [retail investment platform] Robinhood. It’s ways of people saying I have got money, I’m not earning anything on it being in the bank, what do I do with it?’
Beyond housing, Hands says hot areas for investment include technology – ‘in which I don’t understand how to pick the winners’ – and markets ‘where technology can disrupt how they work’. The latter is his forte, and what he claims was the plan at EMI as Spotify and its rivals revamped the industry. ‘We
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said the CD is dead, and started on our plan which focused on the digitalisation of music, but unfortunately we didn’t get the time.
‘ If I look at valuations now, it would’ve been the best deal we’ve ever done. But if I look at the values now compared to how little I paid in 2007 it would be pretty difficult to go back and buy again.’
The arch-Remainer says his biggest hope is to make a success of his Engage Britain venture. The charity aims to bring ordinary people with disparate political views together to discuss how to improve the country. ‘Politics divides people,’ he says. ‘If Engage can come up with solutions to make Britain better, I’ll be far prouder than anything else I’ve achieved.’