Hands, through his privately owned vehicle, Terra Firma Capital Partners, is putting together a consortium of investors that is expected to table a bid for Thames, which has been earmarked for disposal by RWE, the German utility group.
“He is very interested in Thames,” said a source this weekend.
Hands’s plans are at an early stage, according to those close to him. Advisers have yet to be appointed, and it remains possible he may not bid.
Goldman Sachs, the investment bank handling the sale for RWE, is expected to begin sending out financial information on Thames Water within weeks. RWE, which paid £4.8 billion for the utility in 2000, is also considering a float of its water assets, which include American Water Works.
Thames is Britain’s biggest water company, with 8m customers, and the third-largest in the world. It employs more than 12,000 people in 46 countries.
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Its size means Hands would need a number of co-investors. Kohlberg Kravis Roberts, the private-equity group, and infrastructure funds including Macquarie and Babcock & Brown are understood to have signalled their interest.
Last week reports suggested that Spanish construction and infrastructure groups such as FCC, Ferrovial and Acciona were also looking at Thames.
RWE has decided to offload its water businesses to focus on its gas and electricity interests. The German group admitted last month that the concept of a global water empire had failed to produce the expected benefits.
A successful bid for Thames would be another landmark in the career of Hands, one of the private-equity world’s most famous names.
Hands, worth £175m according to the Sunday Times Rich List, established his reputation at Goldman Sachs and Nomura, the Japanese bank, where he became known for securitising property assets and landing huge returns for investors.
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By 1995 he had bought 1,800 pubs from Grand Metropolitan, an acquisition that was followed by many others. A year later he paid £700m for a third of British Rail’s rolling stock. He sold the asset within two years, netting a £400m profit.
Other deals included buying 57,000 Ministry of Defence homes for £1.7 billion, a portfolio that he still controls. The group’s equity in the business is thought to have grown from about £100m to more than £600m.
Hands quit Nomura in 2001 to set up Terra Firma, where his investments have included Odeon and UCI Cinemas and Viterra, a German property company for which he paid €7 billion (£4.8 billion) last year.
A deal to buy Thames Water would be even larger, and surpass the biggest leveraged buyouts undertaken in Britain in recent years. These included the acquisition of the AA for £1.75 billion by the private- equity firms CVC and Permira.
RWE’s planned disposals of Thames Water and its American water business, which analysts have suggested could be followed by a bid for Centrica, the owner of British Gas, come amid a flow of deals in the British water sector.
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Last month Terra Firma sold Sutton and East Surrey Water to Deutsche Bank for £189m, while a 25% stake in Southern Water, owned by the French group Veolia Environnement, is being auctioned by NM Rothschild, the investment bank.
Hastings Fund Management, a unit of the Australian bank Westpac, bought Mid Kent Water for £241m last February.