‘You Gain Freedom’: DEAG Founder Peter Schwenkow On Delisting His Company

 

The vast majority of staff are working from home at the moment, including DEAG founder and CEO Prof. Peter Schwenkow, who’s finding that most of his staff are working even harder during lockdown. He is therefore making sure to get 90 minutes of outdoor exercise every day and encourages his employees to do the same.

 

DEAG has promoted events during the pandemic, but they’ve been far and few between, seeing that the promoter didn’t take part in the various pilot events running at vastly reduced capacities during the summer of 2020. 

 

DEAG’s Christmas Gardens in November and December, being outdoor events with limited people on site, seemed to fulfill every COVID restriction imaginable, but got cancelled by the German authorities at the last minute. The British Christmas Garden in Nottingham was allowed to go ahead at first, attracting some 100,000 visitors, before it eventually got cut short by the British government’s COVID measures.

 

DEAG was one of the first promoters to go public in 1998. So, when it announced plans to delist from the German stock exchange, it was big news. Pollstar reached out to Prof. Schwenkow to find out why.

 

Peter Schwenkow: We went public in 1998, more than 22 years ago, because we wanted to prove a few things. 

 

Firstly, that our business could be conducted in a transparent way. Secondly, that our business is predictable. Even if you don’t know who’ll be touring arenas in autumn next year, you do know that the market is driven by demand, and that there will always be artists going on tour. Thirdly, and most importantly, the possibility to refinance further growth via the capital market – an option we’ve made use of many times.

 

We’re now in a situation, after facing an employment ban that’s been lasting more than ten months, where investors are asking, “what’s next for DEAG?”

 

The answer you’re then forced to give is something along the lines of, “we believe that, once enough people have been vaccinated, once we reach herd immunity, we’ll be able to return to business. National tours may recommence in summer and increase in autumn. International tours could pick up again next year, once visitors from foreign countries no longer have to quarantine themselves for up to ten days.”

 

All of this will take at least one-and-a-half years, and there are investors that say, “that’s too long for me. And what happens if B117 from the UK arrives, or a further mutation B118 from yet another country? We better be careful.”

 

This stance led to DEAG’s shares dropping to €3.70 in the end, which led us to say, “the stock market is not the place for us anymore.”

 

Since we’re operating in the mid-cap segment, we couldn’t see this valuation changing substantially in the coming 18 months.

 

We’re going to be the only major promoter in the world to end the year on a positive EBITDA, not just because of insurance benefits, but also because we placed our staff on short-time work contracts and are receiving support in the various countries we operate in. We communicated this to the capital market, and the capital market still didn’t react accordingly.

 

So, we asked ourselves, where to get the money from instead. We talked to our existing investors, asking them if they’d provide us with the financial means to acquire a few more promoters that are in bad shape right now.

 

The investors said, ‘yes,’ under the condition that DEAG delists from the stock exchange, so they could acquire the whole business, provide it with the required funds and ensure their participation in future profits.

 

Without being allowed to name the exact figure, the financial framework for acquisitions we’re now able to access in the coming two or three years is many times over what we would have been able to collect on the capital market.

 

No, everything stays the way it is. All executives and directors remain on board, as do our partners, from [founder and CEO of Kilimanjaro Live] Stuart Galbraith to [Wizard Promotions managing director] Oliver Hoppe to [handwerker promotions] Fred Handwerker. Nothing changes for them.

 

One advantage we see with our investors, who provide the money for the delisting as well as further growth, is that they’ve known our company for many years. Christian Angermayer, our lead investor, first invested in DEAG between 2006 and 2010, and again since 2016, so I’ve known him for 15 years, he’s become a really good friend. 

 

I’ve known Mike Novogratz, the U.S. billionaire and hedge fund manager, for the past five years. There’s two more, who I’ve known for quite a while now. 

 

They all know that we’re in a peoples’ business. “Keep the people happy and business will be great,” is the philosophy, which is why none of them will want to interfere. They’ve also got no ego, which is why they won’t be expecting golden backstage passes and dinners with Jennifer Lopez in exchange.

 

They’re cool, calculating, very wealthy people, who are saying, “this is a good opportunity.” They’re believing in the return of live entertainment to a greater extent than the capital market is at the moment.

 

You gain freedom, also with regards to our day-to-day business, because you can make strategic decisions regardless of how the capital market might react to the publishing of quarterly earnings three months ahead. 

 

You’re obviously trapped to a certain extent within the unwritten rules of the capital market, which are guided by the intention to please investors. It may lead to you not making a strategic move, because it will negatively affect the results in the short term. Or it may lead to you making a strategic move, just because it will please the investors.

 

The freedom that comes with delisting was summed up nicely by Axel Springer CEO Mathias Döpfner, who said, it’s the freedom to make strategically sound decisions for your company without having to fear being beat up by investors during the publishing of next quarter’s numbers.

 

We’re still stock-listed, the entire process will only be completed at the end of March. So, we’re still subject to restrictions imposed on us by the exchange. But I can tell you that we’re constantly screening the market for attractive opportunities. 

We’ll be focused on our respective domestic businesses, local artists in Germany, local artists in Switzerland, local artists in England. I think international touring will only come back later.

 

And we’re continuing to focus on family entertainment, we’re planning 12 to 15 Christmas Gardens in November and December, because they’re COVID compatible. They take place outdoors, you can wear a mask, we know who’s visited at what time, so we could do contact tracing, should that still be a requirement in November, December. 

 

There are other areas in family entertainment that look promising, as well, including Disney on Ice and various musicals for children. Those areas will be our focus in the coming 12 to 15 months.

 

In Germany, the federal government chose to ban traditional Christmas markets form going ahead, as well as telling children to stay at home from school. At the end of the day, they banned our Christmas Gardens based on a misguided interpretation of the equality principle.

 

However, that only happened in Germany. In England, the Christmas Garden in Nottingham was allowed to go ahead, at least for a while.

 

Yes. I believe it will take another four to five months until we’ll finally hear the sound of a live rock guitar again.

 

And it’s about time, because music is bread for the soul, and we’re currently starving. 

 

Depending on the country you look at, there are two main forms of support at the moment, Germany is discussing them as well. One of them sees the government taking over the costs for events that have been announced for September but cannot go ahead in the end, in other words, a form of default fund for a time when the current cancellation insurances won’t be in place anymore. 

 

In Germany, for instance, you also have a regulation that says, if you could sell 2,000 tickets, but are only allowed to sell 500, the government will cover the costs for the remaining 1,500 seats you cannot sell. Both methods would ensure a way of slowly bringing back live audience events. 

 

However, at the moment, we can observe that politicians, and not just in Germany, are real sticklers for red tape. What they announce often has little to do with what is being implemented. I don’t tend to believe these politics of empty promises, which is why I don’t believe that there will be a mass start for culture at reduced capacities.

No. Not even close. We now been banned from working for 10 months straight, and it will likely be 15 months, after which we may be allowed to work under very restricted conditions. 

 

To this day, I love to visit up to 60 concerts per year. I miss it. Incredibly so. You have to really discipline yourself in order to maintain a positive outlook and compensate the absence of all that you love with other things.

 

Always a pleasure, thanks for the talk.