Southampton Takeover – Serbian Saints

Today’s big announcement was the Southampton takeover by Dragan Solak. Dragan has purchased the club alongside Henrik Kraft and Rasmus Ankersen. For an overview of each individual, check out Sky Sports article as this is not the main point of this article.

Transaction overview

Dragan has purchased 80% of the Saints for a reported £100m (valuing 100% at £125m). On the face of it, this makes Southampton seem a relatively ‘cheap’ purchase – Newcastle was purchased for a reported £300m. However, Southampton has significant debt of £90m (although the club had cash of £87m in 2020, it is likely this figure is significantly less now, while debt is likely not that much lower). This values the club at around £215m (£125m + £90m). 

This is still a relatively cheap purchase, highlighting the protracted selling process with Saints being on sale for over two years, hence the possible discount. 

CEO Mark Semmens stated “Over the last two years, together with the shareholders of our club, we have searched for the right partner to take the club forward. Today we have found the perfect solution for our club.”

Following the Southampton takeover, we take a quick look at what Dragan is purchasing:

Southampton Takeover – Revenue

Southampton revenue has fluctuated between £120-180m between 2015 and 2020 (Southampton’s 2021 accounts are yet to be published). Revenue peaked at £182m in 2017 when the club competed in the UEFA Europa League (UEL). UEL participation is a distant goal as of now with the club finishing in the bottom half in each of the last four seasons. Qualification for the UEL could boost the club’s revenue to over £200m. 

The 2019 season represents the most “normal” current revenue profile of the club with 2020 (and 2021) impacted by the pandemic. 

Southampton rely significantly on broadcast revenue (77%) which predominately relates to Premier League distributions. Matchday revenue (13%) and commercial revenue (11%) contribute similar amounts to revenue, albeit commercial growth is possible.

All above indicates a revenue multiple of around 1.5, which is largely in line with similar, recent Premier League transactions.

Southampton Takeover – Operating costs

Operating costs have been around £150m in recent years, a similar level to revenue. The majority (£110-120m) relates to wages. Discounting the COVID-hit 2020 season, the wages to revenue ratio has stayed around 70%, in-line with UEFA’s recommended limit for financial stability.

Southampton Finances – Transfers

Southampton has been a net spender in recent years following years of significant player sales that boosted finances. The club has a few significant assets which could be monetised; however, this would risk the club’s all important Premier League status so may not be viable.

Transfermrkt.com values the current squad at £222m, the 13^th highest in the Premier League.

Southampton, with the introduction of Rasmus Ankersen, the man behind Brentford’s rise, is an interesting figure in this deal. It is likely that there will now be a renewed focus on the club’s recruitment, with the club looking to generate significant player sales in the future.

Southampton Takeover – Profitability

Southampton has been loss-making in the past two seasons, both before and after player trading. This comes after a long period of operating profitability. This was due to increased spending in recent times. A return to more modest spending is anticipated which would drive profitability.

Dragan & co are exploring further football club purchases. If this occurs, it is likely Southampton would form part of a larger financially stable machine making profitability a key goal.

Southampton Takeover – Debt

The Saints has three bank loans with different payments terms. A £12.5m loan is repayable this year 2022 and has attracted an interest rate of 1.1%. The largest chunk of debt is a £78.8m loan attracting it a very high 9.1% interest rate. This loan is repayable in 2025. An early priority of the new owners will be to refinance this at a lower interest as it is current costing in excess of £7m. Finally, the club has a revolving credit facility attracting a 3.9% interest rate. No amount is currently drawn down on this loan and it may no longer be available.

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