March 26, 2014 2:27 pm

Bertelsmann seeks €3bn in acquisitions

Bertelsmann, Europe’s largest media company by revenues, is planning to spend €3bn on acquisitions as it looks to revive flagging growth.

Thomas Rabe, group chief executive, said that the company’s top priority was the education sector, which would account for a “significant chunk” of its targets.

Bertelsmann, which controls the publisher Penguin Random House, in which Pearson, owner of the Financial Times, holds a minority stake, and the broadcasting group RTL, on Wednesday reported full-year revenues of €16.4bn, up 2 per cent year-on-year.

“We have very strong market positions, high profitability, high cash flows, low levels of debt but we are lacking growth,” Mr Rabe said.

The chief executive explained the lack of growth was primarily due to the group's European footprint, the fact that most businesses were in traditional media, and continued structural decline in businesses such as printing.

He said that a reduction in net debt had increased the potential for acquisitions.

Bertelsmann will also commit well over $100m to a new education venture fund, with the aim of being able to acquire several of the portfolio businesses.

Mr Rabe said the group expected to make some initial investments in the second quarter of 2014. “These are highly profitable markets and they are growing,” he said of Bertelsmann’s existing education businesses.

The conglomerate’s net debt fell to €636m, following the sale of shares in RTL last year, allowing it to raise about €1.2bn within its debt limit of 2.5 times earnings before interest, tax, depreciation and amortisation, said Mr Rabe.

The first cheque we write should be in the order of €500m

- Thomas Rabe, Bertelsmann chief

A further €1.8bn for acquisitions would come from free cash flow in the coming years, although Mr Rabe ruled out multimillion euro acquisitions. “The first cheque we write should be in the order of €500m,” he said.

The group also plans to invest in music rights. Mr Rabe said that he wanted BMG, Bertelsmann’s music rights business, to have €500m in annual revenues within the next three years, from about €300m currently.

Net profit rose from €612m to €870m primarily because of a reduction in exceptional items. “In terms of net profit, this is probably our best year in the last 20 years or so.”

Mr Rabe is seeking to increase Bertelsmann’s exposure to online media, however he ruled out a rival to Netflix, saying that the group’s focus would remain on advertising-funded video on demand. 

Netflix, which analysts estimate has about 2m subscribers in the UK, is expected to enter the German market this year.

“The willingness of Germans to pay for subscription video on demand services is under-developed compared to other countries,” Mr Rabe said.

Asked about a report in the German press that his contract may not be renewed, Mr Rabe said: “There’s all sorts of speculation. All I can tell you is that there’s no substance to this article.”

The report in Handelsblatt claimed there had been a cooling of relations between Mr Rabe and the Mohn family, which controls the company.

Mr Rabe said that it was “completely wrong” to say there was a lack of unanimity over strategy in the company. However, he said there was a debate over the pace of change.

“There are a number of people – not so much in the company – who think we’ve got too many balls in the air,” Mr Rabe said.

In a statement issued today, Christoph Mohn, chairman of the Bertelsmann supervisory board, praised Mr Rabe’s “outstanding performance”.

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