A Conversation with Guy Hands, Founder & Chairman of Terra Firma Capital Partners.

Private Equity (PE) firms are the financial giants who provide the foundations for many of our world’s most successful businesses.

Globally, PE firms manage over $2.5 trillion in investor money – and are perhaps best known for their spectacularly big-ticket deals such as the $60 billion merger of Dell with EMC, the $26 billion acquisition of Hilton Hotels by Blackstone, the $20 billion takeover of Clear Channel communications by Thomas H. Lee Partners & Bain Capital and many more.

Private Equity isn’t however just about the money.  Often the expertise these businesses bring along with their capital is the key to transforming strategy, operations, finance and management.

Terra Firma are one of Europe’s largest (and most successful) private equity firms who, since 1994, have invested over €16 billion in 34 businesses with an aggregate enterprise value of over €48 billion.

I caught up with Guy Hands, Terra Firma’s Chairman & Founder to learn more about the world of private equity.

Q: What is the role of private equity in the lifetime of a business?

[Guy Hands] Terra Firma’s aim is to create value for investors by building stronger, more sustainable businesses. We invest for growth in order to sell businesses that are in better shape than when we bought them.  Our strategy is clear – we invest in asset-backed businesses that require fundamental change in essential industries. Transformation doesn’t happen overnight and we invest for the longer term in order to deliver on changing strategy to build a better business and create value.

Terra Firma’s exit of the German motorway services business, Tank & Rast, is a great example of our strategy in action and highlights how private equity ownership can really drive and enhance value for customers. Acquired by Terra Firma in 2004, we spent over €1 billion on modernising the network, which resulted in improved customer satisfaction levels of over 95%.  When we sold the business in 2015, it was recognised for providing the best motorway service stations in Europe. We’re very proud of this achievement.

Q: What are the key factors PE investors look for in target investments?

[Guy Hands] I can only speak for what we look for in target investments at Terra Firma, but we have a very clear strategy for identifying potential acquisitions. We look for businesses in essential industries that have been underinvested in and are in need of transformation. Our specific value creation thesis is based on five drivers that we look for when assessing an investment:

1. Firms that are in need of a significant strategy overhaul;

2. Businesses that may benefit from a strengthened management team;

3. Investments that provide the opportunity for capex investment;

4. Opportunities for growth through bolt-on acquisition; and

5. Have a cost of capital that we believe we can improve.

A great example of this is Welcome Hotels, which we bought last year. It is a German hotel chain, which under previous owners was sub-scale and not a core part of its previous owner’s portfolio. We saw a great opportunity to invest in the business and to expand in the coming years, while also driving operational and strategic change.

Q: What should be the ideal relationship between investor and business

[Guy Hands] The management of a business, to me, is absolutely key. It is so important to get the management team right and often they are the difference between success and failure. At Terra Firma, we focus on forging a very close working relationship with our management teams and my colleagues are routinely seconded in to our businesses to ensure they have the support they need to drive through changes.

Q: What are the characteristics of a great business?

[Guy Hands] Simply put, a great business will understand its customers, have a clear, sound strategy and a business plan that can deliver against it. In order to do this it is very important to have a management team who can execute that plan. Without that, a business will struggle to reach its full potential.

Q: What are the characteristics of great leaders?

[Guy Hands] To me, a great leader should be empathetic, authentic, entrepreneurial, creative, ethical and lead from the front.

Q: What are the most common mistakes made in high growth, or PE backed businesses & what does failure mean to you?

[Guy Hands] The most common mistake is to stop challenging when things are going well. I recognise failure as not having made a business better than when you were first involved.

Q: How do you know when to enter & exit your investments?

[Guy Hands] We have a clear strategy and set criteria for investment which is based on five value drivers. If we cannot put together an investment thesis based on the five drivers test then we don’t invest.

We encourage the whole firm to bring investment ideas forward, especially junior colleagues, for whom it’s important to learn early how to build an investment thesis.

Our focus is to build better businesses and if we’ve seen long term improvements that will deliver value for our investors, it’s the right time to think about exiting.

Q: What is the impact of economic, cultural and social change on PE investor appetite and strategies?

[Guy Hands] While most people are uncomfortable with change we have a business built on analysing it. Our business takes advantage of challenges and the opportunities they provide. Recent political changes, for example, have thrown everything up the air and made business very unpredictable. It doesn’t matter what business you are in – you’re affected. The next 5-10 years will be tough but businesses that can adapt and take advantage will be able to prosper.

As the rise of populism causes increased scepticism of business we are very conscious of our role as a firm in society. We focus on the impact that our portfolio businesses have on all of their stakeholders, from investors and employees to the local communities in which they operate.

We believe the way for GPs to navigate this uncertain world is to work closely with investors, and to ensure that we are all aligned and pulling in the same direction. Terra Firma seeks to build long term relationships with investors.  We’ve also committed to a 10% GP stake in every investment we make in order to ensure true alignment of interest.

Q: What can government do to stimulate successful, growth businesses?

[Guy Hands] The Government’s role should be to provide as much certainty and stability as possible. It should strike a balance between being supportive and scrutinising firms to create the right environment for businesses to support its customers and to grow. In order to get this right the Government should consult with businesses, widely and across various sectors in order to ensure consistency.

Q: How is short-termism impacting investment?

[Guy Hands] At Terra Firma, we take a long-term approach, recognising that transforming businesses does not happen overnight. Our aim is to create long-term value and typically remain invested in our portfolio businesses over multiple years, in order to deliver on changing their strategies. I think there is huge volatility in short-term investing.  If we keep a long-term perspective in mind, we will go through the good cycles and the bad cycles and reach the other side.  Short-term vision does not allow one to build better businesses and create value.

Q: What have been your greatest learnings through your business career?

[Guy Hands] Getting the strategic view right is the most important thing. Getting the right management team in place to deliver it is also key to a successful investment.


Guy is Terra Firma’s Chairman and Founder. He is the Chief Investment Officer and sits on the boards of the general partner of each of the Terra Firma funds and heads Terra Firma’s Executive Committee.

Guy started his career with Goldman Sachs International where he went on to become Head of Eurobond Trading and then Head of Goldman Sachs’ Global Asset Structuring Group. During this time, Guy was a leading pioneer in the development of securitisation, extending the practice beyond simple debt instruments to include assets such as shopping malls, mobile home parks and distressed loans.

Guy left Goldman Sachs in 1994 for Nomura International plc, where he established the Principal Finance Group (‘PFG’). PFG went on to undertake ground-breaking deals involving trains, housing and pubs, among other areas, using securitised debt to finance acquisitions. In 2002, he led the spin-out of PFG to form Terra Firma.

Since 1994, Guy has overseen the investment of more than €16 billion in 33 businesses with a total enterprise value of more than €48 billion.

Guy has an MA in Politics, Philosophy and Economics from Mansfield College, Oxford University. He was elected a Global Leader of Tomorrow by the World Economic Forum in 2000 in recognition of his achievements. In 2012, Guy was named the 20th most influential figure in Private Equity International’s ‘100 Most Influential of the Decade’.

Guy is the President of Access for Excellence’, a campaign based at Mansfield College, Oxford which promotes the broadest possible access to higher education in the UK. He is a Bancroft Fellow of Mansfield College and supports the college’s Annual Hands Lecture. He is also a member of the University of Oxford Chancellor’s Court of Benefactors. Additionally, Guy is a Fellow of the Duke of Edinburgh’s Award Scheme.

Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.