Wednesday, March 21, 2007

Bertelsmann Teaming with Private Equity

The FT (via MSN) is reporting that Bertelsmann, the owner of Random House and RTL, is teaming up with private equity groups to create a €1billion fund for investments in "opportunities of significant scale" in media related businesses. Bertelsmann will initially contribute €500m. From the article,
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.

Analysts also state that the low cost of capital and the readily available funds that PE has access to poses a significant advantage for the banks versus operators. (This may be the case with Wolters Klewer Education). In this case they suggest that the fund would easily finance acquisitions up to five times the funds value. Clearly this is a shrewd move by Bertelsmann. Rather than watch PE pick-up some potentially prize assets out of sheer financial muscle they are choosing to join in with the bankers and see how it plays out.

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