Try the new FT.com

March 21, 2007 9:42 am

Bertelsmann teams up with private equity

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Bertelsmann, Europe’s largest media company, is joining forces with private equity groups, to establish a novel €1bn investment partnership which could herald a newly acquisitive growth phase for the owner of RTL and Random House.

The family-controlled German group will contribute up to €500m to the new fund over three to four years, with the remaining equity provided equally by Citigroup Private Equity and Morgan Stanley Principal Investments. Although some large media companies have worked with private equity partners for individual deals, the initiative is unusual in setting up a long-term partnership to look for what Bertelsmann described as “opportunities of significant scale” in media-related businesses.

It comes amid increasing political scrutiny of private equity groups and growing frustration among some large companies at the beneficial tax treatment and easy access to cheap debt enjoyed by financial sponsors. With an initial €1bn of equity and the ability to access debt on private equity terms, the fund could allow Bertelsmann and its partners to make investments worth four or five times that sum.

Bertelsmann said the initiative would allow it to take minority stakes in businesses and decide after three to five years, when its partners are seeking an exit, whether to take full control. The initiative comes just 10 months after the Mohn family, which controls the group, engineered the buyout of Groupe Bruxelles Lambert, its only external shareholder. The deal increased Bertelsmann’s debt by €4.5bn to €6.8bn and lowered expectations that one of Europe’s most conservative media groups would be able to take on any large deals in the short term.

Thomas Rabe, chief financial officer, said Bertelsmann would have reduced debt to its targeted ratio of 2.3 times earnings before interest, tax, depreciation and amortisation by the end of the year. “At that point we will again have financial scope of between €1.2bn and €1.5bn per year for acquisitions and €700m for other ongoing investments,” he said, noting that this could add up to €6bn of investments by 2010.

About 10 per cent of its acquisition budget will go to the private equity partnership, which would provide additional “financial leeway” beyond these plans, the group said. The extra debt taken on by the vehicle will be kept off Bertelsmann’s balance sheet.

News of the partnership came as Bertelsmann reported record revenues and earnings for 2006, with a 16 per cent increase in operating earnings before interest and tax to €1.87bn on sales of €19.3bn, up 7.9 per cent. Net income more than doubled, from €1.04bn to €2.42bn, largely because of the sale of BMG Music Publishing to Vivendi’s Universal Music.

Gunter Thielen, the group’s outgoing chief executive, said its rising return of sales, up from 9 per cent to 9.7 per cent, meant it could generate the cash flow necessary to continue growing without additional debt. Bertelsmann was “poised on the threshold to a new period of growth,” he claimed.

Copyright The Financial Times Limited 2017. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE