Terra Firma clinches €7bn Viterra deal

Terra Firma Capital Partners is set to sign terms to acquire German property group Viterra for €7 billion in Europe’s largest private equity deal to date.

German utility E.ON will later today sign terms to agree the sale of its property arm Viterra to London-based private equity firm Terra Firma Capital Partners, according to sources close to the negotiations. The purchase price is understood to be €7 billion. A statement regarding the deal is expected to be made to Deutsche Boerse, which runs the German Stock Exchange, later today.

Guy Hands, CEO, Terra Firma Capital Partners

Terra Firma, which is headed by UK financier Guy Hands, is buying the business through its existing portfolio company Deutsche Annington Immobilien (DAI), which was acquired in December 2000 in a €1.4 billion deal led by Nomura Principal Finance (NPF). When Hands launched Terra Firma in 2001, he took with him a number of former NPF employees as well as responsibility over a portfolio of assets including DAI, which owns around 79,000 flats.

Citigroup Property Investors, a unit of Citigroup Alternative Investments, is understood to be participating in the deal through an undisclosed investment in DAI.

Terra Firma has beaten off competition from New York-based hedge funds Fortress Investment Group and Cerberus Capital Management in order to capture the deal. In September 2004, Fortress outbid Terra Firma when acquiring German residential housing company Gagfah for €3.5 billion. Fortress’ German operation is headed by former Terra Firma managing director Matthias Moser, who quit Terra Firma in October 2003.

The size of the deal, which makes it the largest private equity deal ever completed in Europe, comes as a surprise. Press reports in early May had noted that analysts had valued the business at around €5.5 billion and that at the time offers had been pitched at around that value.

Viterra, which owns around 151,000 German apartments, was originally lined up for an IPO by E.ON, which decided to part company with the business in order to focus on its core power and gas activities. The IPO plans were ditched later due to uncertain market conditions.

Viterra is one of a number of German property deals either recently completed or currently under discussion. As well as the Gagfah transaction, US private equity firm Oaktree Capital was recently granted exclusivity to buy the 21,000-home Gehag portfolio from Hamburg-based Landesbank HSH Nordbank for around €1 billion while Hanover’s Landesbank NordLB is looking to sell its 30,000-home Nileg portfolio.

Last December, WCM sold a portfolio of German residential properties to New York-headquartered Blackstone Group for €1.4 billion, and Terra Firma acquired 4,500 apartments from utility RWE for €225 million. In May 2004, the Berlin government sold property association GSW Group to Goldman Sachs and Cerberus Capital Management for €1.97 billion.