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Bertelsmann raises €1bn buyout fund and targets Thomson

German media giant Bertelsmann has launched a new €1 billion buyout fund in conjunction with Citigroup and Morgan Stanley, to target “significant scale” deals. The first of these may already be in the pipeline.

German media company Bertelsmann has teamed up with the buyout arms of two investment banks to create a €1 billion ($1.3 billion) media-focused private equity fund, which is reportedly eyeing its first deal already.

Bertelsmann is contributing about €500 million to the new “equity fund” over the next three to four years, which will also include €250 million contributions from Citigroup Private Equity and Morgan Stanley Principal Investments.

The fund may be targeting its first deal already. The Financial Times reports that Bertelsmann has teamed up with three private equity groups to bid for Thomson Learning, a Canadian-owned educational publisher thought to be worth about $5 billion.

The innovative investment vehicle is one of the first examples of an acquisitive large corporate forming a long-term partnership with private equity groups to complete a number of “significant scale” deals, and demonstrates the appetite within the corporate world for access to private equity style leverage and returns

It plans to use the fund to take minority stakes in businesses and then decide after three to five years whether to take full control. Bertelsmann increased its debt to €6.8 billion last year in order to buy out Groupe Bruxelles Lambert and return cash to shareholders, but any debt assumed by the vehicle will remain off the company’s balance sheet, allowing it to accelerate returns on the fund’s investments. 

Chief financial officer Thomas Rabe, who will run the fund, said Bertelsmann would have between €1.2 and €1.5 billion a year available for acquisitions until 2010, about ten per cent of which will go into the buyout fund. He also said the company is launching a €50 million venture fund, which will invest in new media start-ups.

The news came yesterday as Bertelsmann reported record revenues and earnings for 2006. Revenue more than doubled to €2.42bn, thanks largely to the same of BMG Music Publishing to Vivendi, while earnings were up 7.9 percent to €19.3 billion.