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TAKEOVER UPDATE: Are Spanish private equity firm the new SUNDERLAND owner’s financial backers?

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What are private equity firms? And, why might they be here for only a few years?

Preparations Begin For Seve Ballesteros Funeral Photo by Denis Doyle/Getty Images

A new name has emerged from the mists of uncertainty surrounding the club’s new ownership, with Spanish private equity firm Thesan Capital suggested to be helping finance the Stewart Donald led consortium’s purchase of Sunderland AFC according to a source close to proceedings.

According to Thesan Capital’s website:

Thesan Capital is an independent investment platform that covers all the spectrum of investment opportunities in terms of sector and deal type (Special Situations, Hedge Fund, SME´s Solutions and Private Equity Investments).

Thesan was created in 2008 launching the 1st Special Situations Fund of the Spanish market.

Our team combines professionals with successful investing experience, with professionals with broad operational track record.

But what are private equity firms, and why would we need one?

Thesan Capital
http://thesancapital.com/

Private equity firms are essentially companies that source funds from wealthy individuals or organizations which they use to acquire companies they believe can eventually turn a profit within a set timeframe of around 4-7 years. This comes at a cost to those providing the initial cash injection - a price of usually around 20% of profits. In turn, they invest their capital with a plan as to how to make a profit.

Sound vaguely familiar? That might be because Ellis Short’s company, Kildare Partners, do much the same thing - though with some slight differences in their approach. Interesting then, that another private equity firm are believed to be backing the club’s new ownership - make of that what you will.

In order for equity firms to turn a profit, they have multiple means at their disposal in order to try and create fiscal growth from their initial investment. From upgrading systems in place at an organisation, or investing in new technology and approaches; to laying off staff, and closing operations that have ceased to turn a profit - private equity firms can be ruthless in their quest for profits.

With our club, you’d imagine the aim is to invest in a playing squad and management team capable of finding its way back to the Premier League within several years. The returns for Thesan Capital? The riches waiting for those at English football’s top table.

Subsequently, when the firm believes that their venture is now profitable, they then find a way to exit the deal. This could be by selling to a large corporation, or by taking a company public in order to bring in further investment.

With SAFC one would imagine that a private equity firm such as Thesan Capital would look to sell the club’s potential revenue streams to an investor keen on taking the club forward with further investment. TV rights deals in recent years have seen billions of pounds pour into the Premier League, and investors are interested in finding a slice of those riches. Thesan likely wouldn’t hang around to rake in money over an extended time, they’d leave as soon as they could find a safe return on their investment.

Sunderland Unveil New Manager - Martin O'Neill Photo by Stu Forster/Getty Images

Little is known about Thesan Capital, though rumours suggest they have been involved in the past with F1 teams and even Spanish second division side, Albacete.

Fans should be cautious in their enthusiasm, though. This cannot be stressed enough.

Thesan Capital might well be providing financial backing to the club, yet they will look to walk away with a profit. Promotion, sensible growth via player sales and increased revenue streams, as well as increased involvement of footballing business experts could well be one way in which all parties walk away satisfied. Yet cost-cutting, asset stripping, and unpopular deals could also be employed in order to increase profit margins.

Private equity investment is a tricky path to navigate in order for all parties to feel satisfied, and this is precisely why Sunderland fans need to remain cautious - yes, this could work out well for our club with fresh investment and ambition in abundance, yet this could also end in tears as Thesan look to find profit.

Sunderland AFC have suffered for several years now due to a lack of leadership and a complete lack of funds. Moving forward, what other choice do we have in our search for a swift return to the big time? Could the club afford a slow rebuild and the lofty costs associated with running such a big club? Likely not. Instead, we’ve had to make a deal with an equity firm that will be intent on making a profit from this deal - one way, or another.