Borussia Dortmund Buy - Side Pitch Book April 8, 2021 Arnaud SEITE arnaud.seite@yahoo.fr ..................................................... 3 ..................................................... 4 .............................................. 5 .......................................................... 7 .................................................. 9 ........................................... 11 ..................................................... 12 .................................................. 13 .................................................... 14 ....................................... 15 .................................................. 16 .................................................................. 17 ........................ 18 .................................................. 19 .................................................... 20 ..................................................... 22 ............................................. 2 7 ......................................... 2 9 ....................... 30 ..................................................... 31 .................................... 32 ...................................................................... 34 ........................................................ 3 6 Table of Contents Company Overview Management Overview Business Model Operating Forecast Shareholder Ownership Liquidity A nalysis Industry Overvie w Competitive Environment Key Industry Trends Historical S hare P rice P erformance Valuation Summary Valuation Analysis Sensivity Analysi s Comparables Analysis Strategic Review and Opportunities Leveraged Buyout Debt Repayment Schedul e Earnout Company Funds Company Overview Industry Overview Valuation Transaction O pportunity .................................................................. 17 .......................................... 29 ..................................................... 3 .................................................... 13 Company Overview Company Overview Ballspielverein Borussia 09 e V Dortmund, commonly known as Borussia Dortmund, BVB, or Dortmund, is a German professional sports club based in Dortmund, Germany It has been founded in 1909 Best known for its men's professional football team which plays in the Bundesliga Bundesliga winner : 8 DFB Pokal winner : 4 UEFA Champions League winner : 1 UEFA club coefficient ranking : 14 th Actual Bundesliga ranking : 5 th on matchday 27 President : Reinhard Rauball Stadium : Signal Iduna Park ( 81 , 365 seats) Avg Med EV/ Revenue 3 62 3 37 EV/ EBITDA 12 47 9 76 EV/ Earnings - 15 4 - 5 46 Net Debt/ EV 100 % 104 % ROA - 12 1 % - 6 0 % ROE - 22 2 % - 8 6 % 0 2 4 6 8 10 12 Apr, 2019 Oct, 2019 Apr, 2020 Oct, 2020 Apr, 2021 Borru sia Dortmu nd DAX Company highlights 2 - year Share Price vs. DAX Industry Data Enterprise Value : Market Cap : Revenue ( 20 - 21 E) : EBITDA ( 20 - 21 E) : UFCF ( 20 - 21 E) : P/E ( 20 - 21 E) : CAPEX ( 20 - 21 E) : Net Debt ( 20 - 21 E) : EV/ Revenue : EV/ EBITDA : EV/ Earnings : Net Debt/ EV : ROA : ROE : Valuation metrics ( € 000) 546,640 484,740 369,136 16,476 - 2,936 N/A 111,129 229,413 1.48 8.68 - 12.44 3 8 % - 9. 6 % - 16. 3 % Management Overview Management Overview (cont’d) Name Hans - Joachim Watzke Thomas Tress Carsten Cramer Gerd Pieper Christian Kullmann Bernd Geske Peer Steinbrück Ulrich Leitermann Arnaud Bjørn Gulden Dr. Reinhold Lunow Silke Seidel Bodo Löttgen Occupation Managing Director (CEO) Managing Director Managing Director Chairman Deputy Chairman of the Supervisory Board Managing partner of Bernd Geske Lean Communication Senior Advisor to the Management Board of ING - DiBa AG Chairman of the Managing Boards of group parent companies of the Signal Iduna Group Chief Executive Officer of PUMA SE Medical Director of Praxisklinik Bornheim Senior Executive at Dortmunder Stadtwerke AG Chair of the CDU parliamentary group Tenure 20 years 15 years 10 years 16 years 2 years 15 years 9 years 6 years Arnaud 6 years 6 years 5 years 2 years Compensation € 1,842,000 € 932,000 € 906,000 € 48,000 € 34,000 € 24,000 € 24,000 € 24,000 Arnauddddd € 24,000 € 24,000 € 24,000 € 14,000 Business Model Borussia Dortmund is one of the largest and most successful German football clubs Currently ranked as the 14 th club worldwide according to UEFA, it has already won the Bundesliga 8 times, the national league 4 times and the UEFA Champions League once The Signal Iduna Park was chosen by the British daily, the Times, as the best and most beautiful football stadium in the world The unconditional loyalty of the club’s fans cannot be compared to any other European club BVB pursues the strategic goal of positioning itself over the long term as a modern football company and establishing itself at the top level of the European football In all of its actions, the club is guided by the principle of maximizing sporting success without piling up new debts To pursue this strategic goal, increase the revenues coming in from marketing rights and the business results and thus the value of the company in a sustainable manner is requested In doing so, management keeps its social responsibilities towards the fans, club members, the city of Dortmund, and the region in mind To do so, the economic foundation was expanded and strengthened with the sole marketing rights for "Signal Iduna Park," the strategic control of the "BVB" brand, and the further development of football related fields of business In the future, the core business will remain professional football with its classic pillars of revenue : games, TV marketing, advertising, retail, and transfers These goals serve as the basis for the management of the company 0 100 000 200 000 300 000 400 000 500 000 600 000 700 000 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21E 2022-23E 2024-25E Matc h operations Advertising TV Marketing Transfer deals Merchandising Conferenc e, catering, miscellaneous Business Model (cont’d) • Increase TV Marketing : Yearly 20 % increase last 10 years Develop BVB’s brand worldwide and especially Asia Continue to get involved at the highest level of European football • Increase Advertising : Constant 8 % yearly increase in the past years Development of advertising and VIP hospitality marketing • Increase Transfers : Young and talented players (i e E Haaland, J Sancho) are supposed to be transferred within the next few years Intensification of the promotion of junior talents • Increase Retail (Merch ) : Use of the brand "Borussia Dortmund”, integration of the fans Work on the Club’s relationship with the fans and earn new ones in Asia • Keep a young and talented squad : Strategic direction cornerstone : junior talent concept as defined by Borussia Dortmund D evelop junior talent into a strong professional team that meats our high sporting demands Currently, the squads’ average age is 24 6 (Bundesliga : 25 6 ) • Lower Debts : As of Dec 2020 , BVB’s Liabilities increased by 3 6 % compared to Dec 2019 More in - depth, the Club reported € 28 8 M in overdraft facilities The company’s goal is to reduce that number through the next 5 years Lower Debts Increase TV Marketing Increase Advertising Increase Transfers Increase Retail Keep a young and talented squad Operating Forecast ( € 000) 23 - 24E 24 - 25E 21 - 22E 22 - 23E 19 - 20 20 - 21E 17 - 18 18 - 19 16 - 17 14 - 15 15 - 16 Match operations Advertising TV Marketing Transfer deals Merchandising Conference, catering, miscellaneous Revenue Growth % Cost of materials Gross profit Growth % Personnal expenses D&A and write - downs Other operating expenses Expenses Growth % Core EBIT Growth % 9 753 102 905 186 820 20 080 34 957 14 621 Arnaud 369 136 - 10.0% 15 865 353 271 - 8.9% 217 035 114 625 114 432 Arnaud 446 092 1.3% - 92 821 - 77.4% 29 259 108 051 205 502 250 000 36 704 16 814 Arnaud 646 330 75.1% 16 858 629 471 78.2% 135 044 102 773 213 289 Arnaud 451 106 1.1% 178 365 292.2% 33 648 113 453 226 052 50 000 38 540 19 337 Arnaud 481 029 - 25.6% 17 942 463 087 - 26.4% 135 888 118 401 158 740 Arnaud 413 029 - 8.4% 50 058 - 71.9% 38 695 119 126 248 657 65 000 40 467 22 237 Arnaud 534 181 11.0% 19 125 515 057 11.2% 149 477 133 190 176 280 Arnaud 458 947 11.1% 56 110 12.1% 44 499 125 082 273 523 84 500 42 490 25 573 Arnaud 595 666 11.5% 20 419 575 248 11.7% 156 951 137 466 196 570 Arnaud 490 987 7.0% 84 261 50.2% 39 942 75 693 82 113 12 447 39 270 26 583 Arnaud 276 048 20 684 255 364 117 932 42 434 98 819 Arnaud 259 185 - 3 821 46 768 84 644 82 564 94 998 39 805 27 480 Arnaud 376 259 36.3% 25 676 350 583 37.3% 140 215 50 238 127 208 Arnaud 317 661 22.6% 32 922 961.6% 43 915 87 350 125 750 77 317 39 452 31 908 Arnaud 405 692 7.8% 25 929 379 763 8.3% 177 949 63 415 131 985 Arnaud 373 349 17.5% 6 414 - 80.5% 42 322 93 962 122 293 222 733 29 499 25 234 Arnaud 536 043 32.1% 20 094 515 949 35.9% 186 715 90 556 206 496 Arnaud 483 767 29.6% 32 182 401.7% 44 659 96 813 167 349 82 881 29 989 31 446 Arnaud 453 137 - 15.5% 21 273 431 864 - 16.3% 205 104 92 482 118 523 Arnaud 416 109 - 14.0% 15 755 - 51.0% 32 510 98 005 169 836 40 160 33 292 36 553 Arnaud 410 356 - 9.4% 22 392 387 964 - 10.2% 215 157 106 130 119 010 Arnaud 440 297 5.8% - 52 333 - 432.2% Operating Forecast (cont’d) • Match operations : € 0 55 M in 2020 ( € 22 63 M in 2019 ) Forecasted to suffer next two years due to the Covid - 19 pandemic and go back to normal level from 2022 - 23 • Advertising : Increased by 3 5 % between 2019 and 2020 Therefore, we suppose a constant 5 % rise a year • TV Marketing : Currently in UEFA Champions League ¼ Finals, the company’s TV Marketing should stay the same as last year Yearly 20 % increase last 10 years, 10 % yearly increase next 5 years • Transfer deals : € 250 M in 2021 - 22 because E Haaland and J Sancho are supposed to be transferred by the next 2 years • Merchandising : Remained stable in 2020 despite global lockdowns and shops closure Forecast to increase by 5 % a year • Conference, catering, miscellaneous : Sharply decreased in 2020 because of Covid - 19 pandemic Expenses • Personnal expenses : Computed as a percentage of Intangible assets (purchased players) and therefore explains 2021 - 22 shrink by the potential selling of E Haaland and J Sancho • Depreciation, amortisation and write - downs : Forecasted as a percentage of Intangible assets and PP&E 2021 - 22 slight contraction explanation above • Other operating expenses : Depend on revenue and therefore are forecasted to rise in 2021 - 22 Cost of Material • Cost of Material : Includes cost of goods sold for BVB Event & Catering GmbH and BVB Merchandising GmbH Therefore, forecasted as a ratio of Cost of Material over Merchandising and Conference, catering, miscellaneous revenue S table since year 10 - 11 and has no reason to destabilize All the forecasts have taken into account Borussia Dortmund Half - Yearly Financial Report H1 2020 - 2021 Revenue Shareholder Ownership 48.3% 17.0% 15.5% 9.8% 9.4% General Public Institutions Private Companies Public Companies Individual Insiders Ownership 9.83% 9.35% 5.53% 5.43% Arnauddd 5.00% 5.00% 3.00% 3.00% 1.14% Arnauddd 1.04 % Name EVN AG Bernd Geske Ballspielverein Borussia 09 e.V 5. IDUNA Vereinigte Lebensversicherung aG , Asset Management Arm Sapardis SE Ralph Dommermuth Beteiligungen GmbH Lansdowne Partners Limited Dimensional Fund Advisors L.P Teachers Insurance and Annuity Association of America - College Retirement Equities Fund BlackRock, Inc. # Shares 9 043 600 8 602 000 5 087 600 4 995 600 Arnaud 4 599 900 4 599 900 2 761 052 2 756 130 1 045 339 Arnaud 960 817 Yearly share turnover is 93 % which is way above competitors’ (Avg 46 % and Med 9 % ) Due to wide variety of shareholders and great percentage of general public compared to competitors ( 13 4 % for A S Roma S P A ) Top shareholders are EVN AG (centenary Austrian - based producer and transporter of electricity) and Bernd Geske (Member of the Supervisory Board) Ralph Dommermuth Beteiligungen GmbH sold € 25 000 worth of shares on February 2021 and Bernd Geske bought € 172 000 worth of share on December 2019 No more insiders trade has been made last two years Liquidity Analysis As at 31 December 2020 , Borussia Dortmund held unrestricted cash funds of € 581 000 Borussia Dortmund also had access to an additional € 120 M in overdraft facilities, of which € 28 8 M had been drawn down as at the end of the reporting period At the same time, cash flows from operating activities amounted to € 30 9 M in the first half of financial year 2020 - 21 while free cash flow amounted to € - 21 2 M • Cash position improves from 2021 - 22 onwards : The Covid - 19 pandemic continues to sharpen Borussia Dortmund financial results and therefore its cash position However, assuming the situation to resume from late 2021 and the transfers of E Haaland and J Sancho, the company’s cash position is forecasted to reach € 40 M by that date • CAPEX goes back to normal after 2021 - 22 expected great transfer deals : CAPEX is mainly driven by Intangible assets CAPEX ( ≈ 90 % ) and therefore by transfer deals Assuming a € 250 M revenue from transfers in 2021 - 22 ( € 150 M from E Haaland and € 100 M from J Sancho), CAPEX are supposed to shrink that year and to return to normal the next year • Volatility of changes in NWC decreases over time and stabilizes at ± € 5 M a year : Deferred income going back to normal and increase in current financial liabilities are forecasted to have a major impact on ∆ NWC in 2020 - 21 From next year, ∆ NWC stabilizes thanks to positive EBIT and therefore increase in cash and decrease in current financial liabilities Industry Overview Industry Overview Company EV/ 5y EBITDA EV/ 5y Revenue 6.40 2.18 2.89 2.49 5.72 1.00 2.21 3.33 51.13 - 10.36 - 17.07 52.23 14.10 39.07 17.69 - 8.18 Strategy Direct competitor because of their willingness to sign youngsters and work together with their strong youth academy “ Ajax Youth Academy ” Hasn’t been profitable for the past 5 years Has lost some competitive strength ( 5 th of the Serie A last year) and do not recruit any youngsters Porto indebtedness is way higher than BVB The company 5 - year averaged earnings is negative and no good result on European cups since 2010 - 11 World’s eleventh most valuable football club according to KPMG (BVB : 12 th ) : direct competitor despite their lack of youth academy talents World’s second most valuable football club according to KPMG Premier League most popular club worldwide Strong and valuable players Recruit a lot of players and do not count on their youngsters Usually play the Europa League Revenue shrunk last year and fan number decreased Huge decrease in Revenue last year Rely on young French and Brazilian players Revenue doubled lasted 6 years due to effective transfer deals Only profitable club with Ajax NV last year and over the last 5 years In a good pac e to win the Liga NOS Rely on Portuguese talented youngsters Competitite Environment Direct competitors : The three biggest market capitalizations and revenue in 2019 - 20 Clubs from England (Manchester United), Italy (Juventus Turin) and the Netherlands (Ajax NV) which usually have a seat in UEFA Champions League While Manchester United and Juventus Turin are some of most valuable clubs worldwide, BVB and Ajax NV are profitable, low indebted, increasing CAPEX clubs Borussia’s strength is valuable E Haaland and J Sancho together with its strong brand name and attractive youth academy Indirect competitors : D on’t always play the UEFA Champions League R evenues are more correlated to global economy (i e recent decrease) Brand names are weaker than direct competitors’ BVB strength is mainly athletic B rand name power while dealing with indirect competitors might tend to great transfer deals Their youth academies aren’t as attractive as Borussia’s Key Industry Trends Industry Revenue 0 500 000 1 000 000 1 500 000 2 000 000 2 500 000 3 000 000 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 Borussia Dortmund GmbH & Co. Direct Competitors Indirect Competitors Annualized +6.0% Annualized +2.4% Annualized +1.5% Industry Review ∆ Revenue Personnal expenses to revenue Profit margin Net financial debt (EUR' 000) ROE ROA 3 - year Revenue growth 3 - year CAPEX growth Current ratio - 0.02% 52.43 % Arnaud - 10.71% 209 203 - 9.07% - 8.49% - 8.75% 93.05% 0.62 - 26.82% 69.25 % arnaud - 37.44% 489 718 - 111.40% - 12.16% - 4.96% 55.22% 0.64 - 23.94% 62.51 % anruad - 15.29% 398 807 - 14.64% - 6.02% - 10.08% 48.06% 0.52 Borussia Dortmud Industry Average Industry Median Out of nine key trends, six are completely in favor of BVB compared to industry average and median BVB’s Return on Assets is bellow industry’s median, the 3 - year Revenue growth and current ratio are bellow the industry’s average Throughout the last six years, the Company’s annualized growth in revenue was 6 0 % whereas the direct competitors’ was 2 4 % and the indirect competitors’ 1 5 % Olympique Lyonnais Groupe had a 13 4 % annualized growth in revenue where on the other hand, A S Roma’s revenue declined by 4 0 % each year on average Valuation Historical Share Price Performance 0 2 4 6 8 10 12 Apr, 2016 Oct, 2016 Apr, 2017 Oct, 2017 Apr, 2018 Oct, 2018 Apr, 2019 Oct, 2019 Apr, 2020 Oct, 2020 8 March 2020 : Recommandation of cancelling all 1 000 + people events in Germany 5 Fev 2019 : DFB Pokal Round of 16 loss against SV Werder Bremen 15 Feb 2021 : M Rose announced as new 2021 - 22 season head coac h 13 Dec 2020 : Head coach L Favre sacked a nd E Terzic as substitute 31 March 2020 : Special shareholders meeting held on 17 April 2020 9 Sept 2016 : Intend to pay € 0 06 per share of dividend from 2015 - 16 25 Aug 2017 : Transfer of Ousmane Dembele to F C Barcelona for € 135 M 29 Sept 2018 : The club ranking 1 st of Bundesliga after a win on matchday 6 • 9 Sept 2016 : At the ordinary 2015 general meeting to be held the 21 Nov 2016 , BVB intends to pay a dividend of € 0 06 per share entitled for the fiscal year 2015 - 16 • 25 Aug 2017 : O Dembele has been transferred for a record € 135 M to F C Barcelona after being bought for € 33 M a year before • 29 Sept 2018 : After six matches ( 4 W, 2 D, 0 L), the club was ranked 1 st of the Bundesliga and remained until matchday 24 and a 2 - 1 loss against FC Augsbourg • 5 Fev 2019 : The team lost in the Round of 16 of the DFB Pokal National Cup against CV Werder Bremen • 8 March 2020 : the German Federal Minister of Health, Jens Spahn recommended cancelling events with more than 1 , 000 people On March 11 , the first match was played behind closed doors • 31 March 2020 : Due to the Covid - 19 pandemic, the company’s management decided to hold a special shareholders meeting with one of the results being paying no dividend for the 2019 - 20 year • 13 Dec 2020 : Head coach L Favre was dismissed after a 5 - 1 loss on matchday 11 leaving the team on the 5 th place of Bundesliga • 15 Fev 2020 : M Rose has been announced as the new 2021 - 22 season head coach of the club Valuation Summary € 596 231 € 1 246 505 € 1 102 145 € 612 685 € 1 255 709 € 687 321 € 833 116 € 1 340 888 € 1 342 755 € 785 336 € 1 368 793 € 1 559 554 400 000 600 000 800 000 1 000 000 1 200 000 1 400 000 1 600 000 52-week trading range + Net Debt EV/ Revenue EV/ 5y Revenue EV/EBITDA EV/ 5y EBITDA DCF Valuation Target Price Valuation Football Field ( € ’ 000 ) Stock Price Performance (Cur: € 5.27) 0 2 4 6 8 10 12 Apr, 2019 Oct, 2019 Apr, 2020 Oct, 2020 Borrusia Dortmund DAX Valuation Metrics ( € ’ 000) EV/ Revenue : EV/ EBITDA : EV/ Earnings : Net Debt/ EV : ROA ( 20 - 21 E) : ROIC ( 20 - 21 E) : 1.48 8.68 - 12.44 42% - 12% - 20% 5 y ∆ in Revenue 5 y ∆ in Rev (E) 5 y ∆ in EBITDA 5 y ∆ in EBITDA (E) 20 - 21 E UFC F 24 - 25 E UFCF 8.25% 7.74% 6.86% 33.12% € - 2 936 € 37 66 5 Blue Sky – Grey Sky scenario ( € ’ 000 ) Blue Sky € 1 496 417 Target Price € 1 151 090 Current € 546 640 Grey Sky € 885 454 Valuation Analysis EBIT Forecast 0 200 000 400 000 600 000 800 000 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21E 2022-23E 2024-25E Revenue Forecast ed Sales 90.0% 92.0% 94.0% 96.0% 98.0% 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21E 2022-23E 2024-25E Gross margin Forecast ed Gross margin 50.0% 70.0% 90.0% 110.0% 130.0% 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21E 2022-23E 2024-25E Expense r atio Forecast ed Expense ratio 0.0% 10.0% 20.0% 30.0% 40.0% 0 50 000 100 000 150 000 200 000 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22E 2023-24E CAPEX Forecast ed CAPEX D&A/ Intangibles + PP&E Forecast ed D&A/ Intangibles + PP&E 0.0% 10.0% 20.0% 30.0% 40.0% 0 50 000 100 000 150 000 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21E 2022-23E 2024-25E D&A Forecast ed D&A D&A/ Intangibles + PP&E Forecast ed D&A/ Intangibles + PP&E 0 50 000 100 000 150 000 200 000 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21E 2022-23E 2024-25E Current assets Forecast ed CA Current liabilities Forecast ed CL Unlevered Free Cash Flow Forecast