Guy Hands’ Terra Firma, on the hunt for additional equity investors in EMI, is telling prospective partners they can nearly quadruple their money in the struggling major label and cash out within five years.
According to a confidential investor presentation obtained by The Post, Terra Firma plans to improve its EMI investment by 2 to 3.9 times, through a mix of cost cuts, dramatically improved digital revenues and strategic acquisitions.
Terra Firma declined comment.
Not surprisingly, some of the biggest changes are slated for the slumping recorded music business, where the company is looking to wring out $223 million in fixed costs, on top of existing EMI cost-saving initiatives.
Some of the biggest savings are expected to come from cuts in the company’s U.S. business, with $31 million set to be whacked from sales and distribution, and merged back-office functions. Terra Firma, which has $1.5 billion in equity in EMI, also sees significant savings from cuts in operations in non-strategic countries.
The firm also wants to reduce costs in artist-and-repertoire and marketing by $58 million by using social networks and user-generated Web sites like MySpace to discover and promote talent.
At the same time, Terra Firma is looking to improve the recorded music businesses’ cash flow by a whopping 766 percent over the next five years – from an estimated $43 million in 2007 to $1.1 billion in 2012 – by driving over $700 million in improved margins from online and mobile music.
Just how Terra Firma gets there remains to be seen, but the private-equity firm said it isn’t ruling out “large-scale transformational acquisitions/business combinations,” including deals with other recorded music companies, touring companies, and artist management businesses.
It’s also looking at a number of smaller-scale indie labels, and has at least $100 million set aside for purchases with hopes to raise that figure to $200 million.
Also on the table are more partnership-oriented deals with artists that would allow EMI to participate in merchandise, touring and sponsorship revenue, and more distribution and marketing of indie label catalogs.
On the publishing side, Terra Firma is looking to more than double the unit’s cash flow to $462 million, largely through improved exploitation of its catalog and strategic catalog acquisitions.