Private Equity Firm Buys Stake in one of the Top 5 Talent agency’s while we see others merge.
Private equity firm EQT is buying a stake in United Talent Agency from investment group Investcorp in a deal expected to close later this month. UTA said the move recognizes its “artist-first approach and recent growth trajectory and will help fuel the next phase of investments in talent, innovation and international expansion.”
Under the transaction, the UTA partnership and leadership will continue to hold the controlling interest in the company, with EQT becoming the largest outside shareholder. Again, as I have said in my previous article why are these agencies merging or getting more investment or debt from equity firms. The reality is they need them to survive. I again caution Wall Street as they won’t likely see the returns on their investments as the industry is still consolidating and there are more competitors entering the market place that cater to the streaming services and networks and the larger studios have cut the amount of projects they are producing, hence less jobs for these agencies talent.
Recently we saw CAA merge with ICM in order to what was billed and sold to us in the public as a great partnership to build a better company. I wrote in a previous article reality of the reason we saw these two staunch rivals merge was because their books and ledgers were in distress. Even William Morris Endeavor Entertainment (WME) sold a major stake of 31% to a private equity investor called Silver Lake. The real reason we saw WME go public was so it could raise funds to pay their debts and their private equity investor(s). Private equity firm TPG owns a large stake in CAA and needed to go public themselves to raise funds in 2021 in order to keep themselves liquid after investing in CAA.
Recently, we learned that The Nomad Group, a multi-billion New York City-based private equity firm made a play to invest in international talent agency CK Talent, which is privately held by its founder. Nomad is a huge stake-holder in Massage Envy, European Wax Centers and many other major companies. Our sources told us that CK’s founder did not even respond to the offer to meet with them. He was quoted by our sources saying “If our company has no debt and we are not over leveraged, why would I take on debt. It doesn’t make sense!” CK made repeated headlines on wall street, when it made several acquisitions over the years when they preferred doing them in cash on their own with out the need to finance them through a financial institution or through a private equity firm. Which is what is normally done by talent management agencies in the business. Which is the way transactions are done in the talent management industry, whereby agencies take out monies from financial institutions to do these types of transactions, because they don’t have the liquidity to buy them on their own.
COVID changed everything since agencies did not have money coming in these agencies needed to find money fast to keep their large salaries for their to managers and agents as well as to cover their debts. It’s like robbing peter to pay paul, you can only keep that up for so long.
These mergers and investment from private equity investments are needed as agencies find themselves in survival mode right now. Agencies revenues are suffering and the top earners in their respective agencies do not want to lower their salaries, so most of the funds raised will go to cover those, instead of being invested in the infrastructure of the agencies. As we all know investing in high salaries will not yield a return on the investment that these equity firms expect and will ultimately result in a loss for them.
In whole the majority of the industry is leveraged beyond capacity and the private equity firms are demanding stiffer terms and the talent management agencies are in weaker positions to negotiate favorable terms.
While the industry still contracts and shifts to a different future in a post COVID world which will require these agencies to do business differently as well as begin to realize that the glamour days of agents and managers with enormously large salaries must come to an end. Agencies will still continue to seek the private equity firms, out of necessity for survival or they will need to merge and see if they can survive. However, as we all know private equity lenders and investors will one day like most creditors call in their loans.Either way, I will be watching from the stands with my popcorn to see what happens after the shifting tides have settled.