The NY Post has a copy of the presentation PE firm Terra Firma is circulating to prospective partners in EMI, which it bought for about $5 billion this fall. The good news: Terra Firma does indeed have plan to get its money back, and then some: It is talking about a 2x to 3.9x return on its investment. The bad news: A lot of the plan hinges on revenue streams that don’t exist yet, and it’s not clear where they’re going to materialise from…
First, the relatively easy part: Terra Firma thinks it can cut another $223 million in fixed costs at EMI. It will whack at everything: Sales, distribution, A&R, marketing. Like everyone else in the music business, it is hoping to use the Web more effectively to find new acts, and to distribute and promote them.
Then it gets trickier: In order to reach its goals, Terra Firma plans on increasing cash flow at its recorded music unit from $43 million to $1.1 billion in 2012, and cost cutting alone won’t do it. Neither will hoping that digital and mobile sales pick up significantly. What will? Terra Firma isn’t spelling that out for its would-be investors.
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.
That’s even more fuel for the never-ending speculation about an eventual merger with Warner Music Group (WMG). But again, not sure how pairing two struggling companies in a declining industry will help. NY Post