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Private equity shoots for goal of long-term success

04 Feb 2014

I’ll never forget my first ever football match. It was the mid-Seventies and my father took me to the Berlin derby between Hertha BSC and TeBe Berlin. The 75,000 capacity stadium was sold out, Hertha won 3:0 – and I was hooked.

I’ve been watching Hertha ever since and, like any fan, suffered my fair share of ups and downs.  To be honest, it sometimes feels like I’ve suffered more than my fair share of downs!
 
The club has spent the last few years bouncing between the top two German divisions and we’re now back in the Bundesliga. What’s needed now is some stability so that we can slowly build up a platform for an assault on Europe and perhaps one day even the title.
 
Before that can happen, Hertha needs finance, business and sporting expertise and, very importantly, patience.  A long-term strategy is vital as success off and on the pitch doesn’t happen overnight.
 
So I was thrilled to hear that Hertha had entered into a partnership with KKR, a private equity fund I know well from my role as Chief Executive of the European Private Equity & Venture Capital Association.
 
But what do a bunch of private equity guys know about football? More than you might think, at least about the business side.
 
Private equity investors back a huge variety of different companies from fashion stores to sandwich shops, cinemas and theme parks, medical clinics or recycling plants to name just a few. Lessons learnt in one sector can very often be applied successfully elsewhere.I’ve seen first hand how private equity investment benefits businesses over the long-term by creating value by improving operations and providing finance to fuel growth.
 
KKR will invest 61.2 million euros into the club and take a 9.7 percent minority share in Hertha. Usually private equity funds take a controlling share in the businesses they back but, under German law, 51 % of football clubs must always be owned by their members.
 
KKR will bring private equity’s brand of smart patient capital to bear on the club’s economic operations, leaving football decisions such as signing players to the club’s management.  The partnership will allow the club to pay off the lion’s share of their loans and to repurchase rights for services such as catering and marketing. Hertha will be able to strengthen its balance sheet and make the most of its earnings potential.
 
As Berlin’s leading football club, Hertha has a large and loyal fan base of 30,000 members – including myself – and huge potential for growth both in Germany and abroad. That’s especially true at a time when the Bundesliga is enjoying unprecedented international attention in the wake of Bayern Munich’s Champions League triumph last year.
 
The club will continue to focus on its highly regarded youth programme, rather than splash out on some big names. This makes a lot of sense at this stage in Hertha’s development and while everyone loves a star, it’s vital the club’s finances are not jeopardized by short-term thinking.   And it’s always great to see a homegrown player come through the ranks, isn’t it?
 
Hertha last won the league championship in 1931 and spent two of the last three years in the second division.  I am not expecting immediate fireworks but the long-term strategy developed between the club and its private equity partners will lay firm foundations for Hertha’s future financial and sporting success.
 
And who knows? I might even get to see Hertha pick up a few trophies along the way.

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