European private equity players earning their reputations
EmptyAmerica has a long history of elevating media dealmakers to superhero status. But a new breed of private equity X-Men are powering through the European entertainment landscape, armed -- at least in their supporters' eyes -- with the heightened ability to finance risk, execute strategy and enhance value in a fashion unheard of among mere mortals. To their detractors, however, they are simply "guys who think they have reinvented capitalism and have become a bit too religious about it," according to one corporate exec who recently moved into the PE world. The media sector dealmakers are not household names, and many are barely known within the companies being eyed for purchase. But each of the PE execs below is making an impact on the future of the media industry in Europe.
Robin Bell-Jones, Goetz Maeuser
Deals: All3Media, ProSiebenSat.1, Premiere, SBS Broadcasting
As Europe's biggest buyout firm -- with £15 billion in funds and around 30% of its invested capital in telecoms, media and technology -- London-based Permira has taken a lead position in the European broadcast sector. The Permira approach, spearheaded by Robin Bell-Jones and Goetz Maeuser, is to seek out transformational opportunities and make a long-term call on an asset's future. As one of the first private equity houses to invest in European media, Permira's decision to put money in loss-making German pay TV group Premiere -- at that time part of the collapsing Kirch empire -- raised eyebrows within the largely media-skeptic investment community. But its successful turnaround enabled Bell-Jones and Maeuser to embark, in 2003, on the longer-term project of acquiring and merging German broadcaster group ProSiebenSat.1 with pan-Euro station group SBS Broadcasting, teaming up for both deals with buyout partner KKR. The path to the SBS-ProSieben altar took four years and was strewn with obstacles (rival bidder Axel Springer appeared to have clinched a deal to buy the German broadcaster), but the marriage has created Europe's second-largest broadcast group after RTL, and has healthy pay TV and online adjuncts as well. The next horizon for Permira's media team is expansion in the U.S., where studios are watching the European media space with interest. U.K. production superindie All3Media, a new Permira acquisition, could prove an attractive target for a U.S. buyer.
Friends say: "They are straightforward, honest and reliable, and you know from the start that they can close a deal -- you can't always say that about everyone in the private equity industry."
Others say: "Because of the size of their funds, they have to keep doing big deals, and those deals are hard to find."
Partner, media team, Apax
Deals: Central European Media Enterprises, HIT Entertainment, Kabel Deutschland (with Goldman Sachs and Providence Equity Partners), Stage Three Music (with Ingenious Media)
With an investment strategy covering a broad range of sectors, Apax is not betting all its money on black when it comes to the media biz. Partner Paul Fitzsimons and colleague Stephen Grabiner have dabbled with early buyouts in kids production, music distribution, cable television and radio, giving Apax a leading-edge position. Fitzsimons was quick to see the potential in owning children's production assets that could travel the preschool world. In 2005, he led the buyout of struggling kids business HIT Entertainment for £489 million, preceding the wave of private equity investment in U.K. production assets by several years. The HIT business should be ripe for an exit within the next 12-18 months and will benefit from an uplift in value across the entire U.K. content sector, as well as a more consolidated position in the all-important U.S. market. With the $190 million acquisition of a stake in Nasdaq- and Prague-listed Central and Eastern European station owner CME, Fitzsimons is also betting on an increase in per-capita income, GDP and mass-market ad growth in geographical markets where access to the European Union free trade market, youthful populations and a strong work ethic are likely to deliver a significant economic upside. Apax is also considering a bid for U.K. broadcaster ITV.
Friends say: "He's thoughtful, has foresight and is a tactician. He doesn't just get into deals, he gets out of them as well."
Others say: "Stephen is the more public face of the Apax team, but Paul probably does most of the work."
Managing director, Providence Equity
Deals: Digiturk, Kabel Deutschland, Kom Hem, ONO, Sparrowhawk Media
At the more self-consciously muscular end of the private equity spectrum, Providence is known for taking no prisoners. John Hahn fits this reputation. With partner Biswajit Subramanian, the former Morgan Stanley telecom dealmakers have spent the past six years carving out a position in the European cable sector that in 2007 is second only to market leader Liberty Media. The Providence approach is not always pretty; when it acquired Germany's biggest cable group, KDG, it fired 80% of the company's managers. But having taken such a high-stakes gamble on the cable sector, Hahn cannot afford to be sentimental. His strategy is to upgrade analog cable systems to digital and bundle lucrative high-speed Internet and pay TV services into the product mix. The prize? Raising sluggish annual customer revenues from the €20-€25 per month that Central Europe averages to the €30-€50-plus range seen in the U.K. and U.S. The process is investment heavy -- around £300 million of KDG's £1.1 billion in revenue last year was plowed back into capital expenditure -- and progress in the market remains slow. KDG added just 69,000 net new digital TV subscribers from June 2006 to June 2007, and faces fierce competition for the provision of rapid Internet services from local DSL providers. But having made a major call on the cable sector, and with the ability to leverage experience and expertise across its investments, Providence is in it for the long haul. It has extended its exit horizon to as much as 10 years after acquisition, well beyond the traditional three-to-five years for private equity.
Friends say: "He is 110% a leader with a tremendous force of will. When investors come on board a fund, they ask about the strategy, the team and the track record -- and John has all three."
Others say: "Even in a room full of PE executives, he has far and away the biggest ego. If he doesn't get his own way, he will throw his toys out of the pram."
Founder and CEO, Terra Firma Capital
Deals: EMI, Odeon and UCI cinema chains.
When Terra Firma chief executive Guy Hands addressed Britain's television elite at this year's Royal Television Society conference, he delivered a disconcerting message. The new owner of record label EMI -- and one of the biggest beasts in the buyout jungle -- told the television industry that its core model was in trouble ... but not enough trouble to make it worth buying yet. In fact, an expression of interest from the former Goldman Sachs and Nomura bond trader can scarcely be welcomed by any management team. Witness the abrupt exit of EMI boss Eric Nicoli and finance director Martin Stewart just weeks after the £2.4 billion buyout was announced in August. Threeyears ago, Hands shook up the U.K. theater business with the £585 million acquisition of the Odeon and UCI cinema chains. Then, he famously fired the management teams after checking how many first class business trips they had made to L.A. "They thought they were in the movie business, but actually they were in the popcorn business," he told execs at the RTS. Hands' speciality is applying a bold personal vision to distressed businesses caught up in the complexities of structural, regulatory or management change. Terra Firma's generalist investment portfolio, of which media is only a recent addition, is a clear reflection of that strategy. His stewardship of EMI is being closely watched. Hands seems happy to rip up the existing record company model -- describing the recent news that Radiohead were releasing their latest album for free as a welcome move that was "a wake-up call" to the music industry. A wake-up call to what, however, is far from clear.
Friends say: "He is hugely clever and driven and will fiercely pursue a deal if he thinks there are levers within the business that can be changed."
Others say: "No one is leading the stakeholders of EMI and there doesn't seem to be any clear vision or anyone saying what they are going to do."
Managing director, Kohlberg Kravis Roberts
Deals: ProSiebenSat.1, SBS Broadcasting (both with Permira)
The one-time director of Hambros Bank has always bought, consolidated and sold sizable companies in much the same unsentimental way as the private equity industry operates. Perhaps that's the main reason Hollick has made a rare successful transition from CEO to PE dealmaker. KKR's leading European media player established his ability to exit at the top of the market when he sold three ITV franchises (Meridian, Anglia and HTV) to rival Granada TV in 2000 for £1.25 billion. Then as chief executive of United Business Media, he stunned the U.K. media industry -- and his own shareholders -- by bailing out of the commercial broadcaster. He was vindicated within months as the combination of the dot-com crash and fragmenting television audiences sent the broadcaster into a tailspin from which it has yet to fully recover. Hollick and KKR partner Dominic Murphy were drafted in to assist European PE house Permira in 2005 with the $2.2 billion purchase of SBS Broadcasting, a partnership that two years later led to the acquisition and consolidation of German broadcast group ProSiebenSat.1, which was being offloaded by Haim Saban's Saban Capital. By all accounts, the relationship between Europe's two biggest media buyout specialists remains cordial, something that cannot always be said of PE houses that endure the strain of joint buyout deals.
Friends say: "He's a consummate dealmaker and has a nose for timing -- he has a track record in knowing when to get out."
Others say: "He's more famous for the way he makes a deal than the way he manages a business."
Partner, Balderton Capital
Deals: Codemasters, Setanta Sports
If the partner of newly minted Balderton Capital hadn't proved to be one of the most aggressive and energetic dealmakers in European media, he might have been just as happy as a sun-bronzed windsurfing instructor in California. But a meeting with "Power Rangers" entrepreneur Haim Saban, followed in 1996 by the invitation to launch a European version of the Fox Family Channel, put an end to all that. The result was Fox Kids Europe, the fastest-growing pay TV channel in Europe, which signed over 500 distribution agreements in its first three years. The then-31-year-old Kreiz earned a reputation for showing up for meetings alone and going head-to-head across a negotiating table lined with executives and lawyers. Balderton, which spun itself out of Benchmark Capital, is now fully owned by the partners. It has 76 early-stage investments and $1.5 billion under management. Tentpole fundings include pay TV operator Setanta Sports, which has dethroned BSkyB as the dominant pay TV sports operator in the U.K.; social networking phenomenon Bebo, which has launched "KateModern," an interactive spinoff of the hugely successful YouTube phenomenon "LonelyGirl15"; and innovative video game producer Codemasters. Unlike many investment houses, where the partners are essentially risk-taking financiers, many on Balderton's exec roster have company-building backgrounds as well.
Friends say: "He's quite a lot like a Power Ranger, really."
Others say: "He's like the Terminator; he just never ever stops."
CEO, Ingenious Media
Deals: Hat Trick Prods., 19 Management, Stage Three Music
The multibillion-dollar leveraged buyout of a mature business is considered the end-goal for many PE consortia. At the other end of the spectrum is Patrick McKenna's Ingenious Media, an investment boutique that specializes in backing early-stage creative ideas across film, television and music. Not that McKenna's ambition has been boutique sized. With more than £5 billion in invested funds, he is considered Europe's biggest individual private investor in media. Until recently, the bulk of Ingenious' business has been film slate financing, with the former accountant to impresario Andrew Lloyd Webber setting up tax structures complex enough to make the Inland Revenue scratch its head. But in recent years McKenna has become more like an investment bank, backing a range of media projects, sometimes at very low levels of investment. He's also launched a growing collection of innovative funding mechanisms for everything from video games to television production and individual album launches. Despite the risk profile of the media sector, McKenna has displayed what amounts to a Midas touch, picking successful companies based solely on the track record and vision of executives. With its first fund in 2001, Ingenious backed Simon Fuller's 19 Management, and has invested in such ventures as Hat Trick Prods., Stage Three Music (with Apax) and ID Distribution. The Ingenious film fund has also backed such titles as 2004's "Vera Drake" and "AVP: Alien vs. Predator," and has launched its own £250 million listed investment venture, Ingenious Media Active Capital, chaired by former BSkyB CEO Tony Ball.
Friends say: "You can try and team up business managers with creative people all you like, but what Patrick does consistently is pick winners. His run rate has been incredible."
Others say: "Patrick is Ingenious and Ingenious is Patrick -- that is both a strength and weakness. If he fell under a bus, it's difficult to know what would be left."
Katy Thompson in London contributed to this report.