1. „Pretzsch Media Group“
A real-time example of a
leveraged buy-out opportunity
Axel S. Pretzsch
Market Trends
Overall trends
- Merging of private equity and media industry
- Economic slump in media because of decline in advertising
- Market cap of companies reduced
Strategic gap
- High cyclicality of publishing
Market Trends
- High inherent profitability
» Margins, subscriptions, fixed cost-structure
- Low level of integration yet
- Regional clustering possible
Recession
- Less advertising leads to financial difficulties
- Portfolio sell-off of big groups
The Opportunity
Drivers for buy-outs: Owners want to retire, financial
difficulties, Internet expansion too quick, strategic refocus
Kirch, Sueddeutsche, Bertelsmann as a few well-known
examples
“5*10=50*4=200” as „magic“ formula
Initial leverage at 50-70 percent
 Expansion in all directions possible
The Future Concept
Value creation process

2. - Brand management
- Geography and size
- Marketing: Advertising and content
- Cost: Production, distribution
- Overall value impact: Double inherent value
- Modernisation: Double category multiple
The Future Concept
Expansion
- Per country
- Per line
- Per field
Exit
- Big funds
- USA
- Media companies
The Deals
Sources
- Four kinds of sources
- Twenty targets
Acquisition strategy
- Size 5 - 10 Mio. Euro
- Quiet
- Personal contacts
- Step by step and then anounce at once
- Convince owners of entrepreneurial vision
The Value Creation Process
A few examples
Sales
- One advertising sales person instead of three
- Better utilization of fixed cost
Cost

3. - Integration of printing facilities
- 30%+30%+40%=100%
The Targets
Big media groups
Small familiy-owned companies
VC and PE portfolios
Business brokers and friends
The Deal
Multi-staged funding
- Seed and expansion pre-committed for up to 250 Million TA Value by
Orlando, a Goldman Sachs based buyout group
Alignment of incentives
- Entrepreneur and fund co-invest
- Fund “loans” money
- Fund can buy shares back in case of non-performance
- Therefore, downside as well as upside
ROI Computation
ROI
- 50 million initial purchase price, 50% leverage, 10% interest, exit after two years for
100 million
- ROI=(100-50%*50*1.1*1.1)/(50%*50)-100% = (100-30.25)/(25)-100%=69.65/25-
100%= 279%-100%=179%
- Almost three times as much over two years
- Ideal case, but shows that leverage leads to “reinforcement” of multiple
- Entrepreneur´s Share 10%*(69.65)=7 Mio.
Profile Axel S. Pretzsch
1989-1995 Dipl.-Ing.Univ. TU München
1990-1995 Founder+GM IPV Ippen + Pretzsch Verlag GmbH
 1996 Top-Nachwuchsprogramm Bertelsmann AG
1997-1998 MBA Harvard Business School
1998-1999 International Product Manager Amazon.com

4. 1999-2000 General Manager GlobalEnglish Germany GmbH
 2000-2001 CEO ShopSmart AG
2002-current Founder+CEO Pretzsch Media Group
Lifelong e-mail: apretzsch@mba1998.hbs.edu
