Terra Firma’s gamble

Terra Firma, the private equity firm founded by renowned investor Guy Hands in 1994, probably could have done without any more dramas. Regardless: it has one.

In a statement last week announcing the departure of Damian Darragh, it said that he had been “asked to leave” the firm. This may sound more polite than the way it was subsequently reported – as a “firing” or a “sacking” – but it adds up to the same thing. The reason for the parting of ways is not entirely clear, although Terra Firma attributed it to question marks over Darragh’s commitment to fundraising for the firm’s debut renewable energy infrastructure fund, which has a target of $2 billion.

Of course, if Darragh were failing entirely to live up to the task, then forcing such a change would be understandable even if regrettable. But the idea of failure in the role sits oddly with what appears to be a widely held view that Darragh is something of a star within the renewable energy investment world. “Hot property” is how one observer we spoke to assessed his status, adding: “I’d give him my money”.

Indeed, Terra Firma’s claimed expertise in renewable energy infrastructure has much to do with Darragh and the deals he has led – including Infinis, the UK wind business which recently listed on the London Stock Exchange, and RTR, the Italian solar operator. Even minus Darragh, the firm will be making its case to investors with his signature writ large over many of the case studies.

Moreover, even if we assume that Darragh’s talents were not so much to the fore when pitching to investors, could he not have been moved back to a role that suited his talents rather better?

Of course, it may be that the ultimate truth is simply unknowable here and that Terra Firma had reasons for moving Darragh on that any employer would have sympathised with. Even then however, a question lingers as to why Terra Firma’s official statement alluded to an adversarial scenario. Does it serve any purpose?

This question and others may be asked in the months ahead of whoever picks up the fundraising baton. The fund has not yet reached a first close, but the firm is understood to be hoping that such a milestone is not too far away.

In its defence, Terra Firma will point to the experience and operational capabilities of Messrs Kinski, Thiele and Wilhelm – the three co-heads now taking charge of the renewable energy infrastructure effort. Kinski perhaps bears the closest comparison with Darragh, having been at the firm for some time and having before that reeled off a long list of high-profile roles in industry.

Nonetheless, the fact remains that a senior management reshuffle of this nature is risky when a fundraising is just at the stage of beginning to elicit commitments.

And that’s even if you are able to view this particular fundraising in isolation – which, when it comes to Terra Firma – you are not. There is, of course, a wider story dating back to the ill-fated investment in music group EMI from its 2006-vintage buyout fund.

Worth remembering of course that both Terra Firma and Hands himself enjoyed stellar reputations prior to the EMI debacle. Nonetheless, it’s clear that a lot hinges on the latest drama – some are even talking of an existential threat to one of Europe’s largest private equity groups.