One thing to start: private equity firms have started to borrow against their funds to backstop overly indebted portfolio companies, a new financial engineering tactic meant to cope with higher interest rates and a slowdown in dealmaking.
In today’s newsletter:
How a private equity deal made CAA agents billions
Times are tight in Hollywood as a golden age for streaming ends and forces a deep retrenchment among media giants such as Disney, Netflix and Warner Brothers Discovery.
Meanwhile, a strike over writer pay has been raging on for months.
But in Tinseltown there looms a large windfall for some super-agents representing Hollywood royalty that is coming from one of the year’s largest deals.
The top staff of Creative Artists Agency are in line to pocket more than $200mn as part of France’s billionaire Pinault family’s acquisition of the Hollywood talent agency, according to terms of the deal obtained by the FT.
CAA’s senior employees including co-chair Bryan Lourd could sell 15 per cent of their holdings in the agency, reducing their stake in the business to about a third, according to documents shared with potential lenders last week.
A final decision on a payout has yet to be made, a person close to the matter cautioned.
While the cash is a nice windfall in an otherwise tight time, a bigger pot comes from the soaring value of the agency during its 13 years of ownership under US private equity firm TPG.
The Pinault family’s deal values CAA’s equity at $5.4bn. When accounting for its debt, the company is valued at more than $7bn.
For TPG, which first invested in CAA in 2010, the sale of its controlling interest amounts to one of the year’s big private equity windfalls. But it has created billions in value for the agency’s insiders too.
Top agents and staff at the agency will continue to own 34 per cent of CAA after the Pinault family completes its purchase, expected by year-end. That minority equity stake is worth more than $1.8bn, far more than the agency’s overall $700mn valuation when TPG first made its investment.
The Pinault family’s holding company Artémis, whose other holdings include a controlling stake in luxury group Kering and auction house Christie’s, plans to use $2.8bn in equity and $425mn in debt to buy out TPG’s stake, according to the documents.
The agency has ridden the boom in sports and media activity in recent years.
It reported $1.5bn in revenues last year, with its largest unit — managing Hollywood stars and offering services to the feature film and television industries — growing 13 per cent to $666mn. Sales generated by its sports business, which involves representing athletes such as Manchester City’s Jack Grealish and Real Madrid’s Eduardo Camavinga, grew 28 per cent to $492mn.
TPG, CAA and Artémis declined to comment on financial details.
CAA has grown steadily in recent decades under Lourd and other co-chairs Kevin Huvane and Richard Lovett, with only the pandemic being a financial blip.
Lourd was a key intermediary in bringing Pinault’s interest in the agency to TPG, which hadn’t been actively pursuing a sale.
He’s famed for a client list that includes Scarlett Johansson, George Clooney and Viola Davis. But one CAA client, Salma Hayek, may have been particularly valuable to the agency.
The superstar actress is the wife of Artémis chief executive François-Henri Pinault and has been a connection between CAA and Artémis for many years.
Burford wins the payout of a lifetime . . . on paper
It was the largest award in the 234-year history of Manhattan’s district court. Last Friday, Judge Loretta Preska effectively ordered Argentina to pay two minority shareholders of the expropriated oil major YPF up to $16bn in damages and interest, bringing a decade-long legal battle to a conclusion.
But will the barely-solvent Argentina be willing, or able, to pay? It’s a question of particular importance to investors in Burford Capital, the litigation funding powerhouse that financed the claims.
Those who carry wounds from previous recovery battles with Argentina have expressed scepticism. Jay Newman, who led hedge fund Elliott Management’s 15-year battle in the same New York court to force the country to pay out on its defaulted debt, said “this claim is so large that, even if it wanted to, Argentina couldn’t pay”.
Elliott’s fight ended in a $2.4bn settlement in 2016, but Argentina is in even worse shape now, ahead of elections in October. The country owes almost $422bn, mostly to local bondholders and the IMF, about $126bn of which comes due by the end of 2024.
Newman said he expects Burford, whose share of the $16bn is likely about $6bn, to ultimately take a significant haircut. “In the near term, they won’t get even half of this,” he said.
Investors have shrugged such warnings off. Shares in US and UK-listed Burford shot up by almost a fifth following last week’s ruling.
It’s a far cry from Burford’s situation four years ago, as it battled accusations of dodgy accounting and a collapsing share price upon becoming the latest target of short seller Muddy Waters. (Not to mention that time they showed up to Burford’s holiday party uninvited.) Burford denied the allegations.
The company, whose current portfolio represents a potential value of at least three times that of the YPF claim, can also now afford a lengthy battle, having recouped its original investment into YPF litigation by selling on roughly $235mn worth of one of the claims to third parties.
But as Facundo Martínez, director of Argentine research institute IERAL and adviser to opposition party Juntos por el Cambio’s would-be economy minister Carlos Melconian, points out, it will take “many years” for the country’s foreign reserves to get back to a healthy level.
“We don’t lack willingness to pay, what we lack is capacity to pay,” he warned. “And an IOU from an insolvent debtor isn’t worth anything.”
Lazard’s Orszag tries for double play
Peter Orszag, Lazard‘s technocrat CEO-to-be, has — true to form — sent a memo to staff and to the public with his vision for where he wants to take the storied if stagnant firm once he takes the helm on October 1.
DD’s Sujeet Indap and the FT’s Josh Franklin have the details: most notably Orszag believes the firm can double its revenue and stock price over the next seven years based on the planks of his Lazard 2030 master plan. Areas of focus include private capital transactions and the Middle East gold rush.
But what struck us most was the vision for Lazard’s . . . shall we say, unique culture.
The firm has been known for giving free rein to its larger-than-life personalities including the likes of André Meyer, Felix Rohatyn and more recently, Matthieu Pigasse.
But the flip side was an often divided and fractious house in America and Europe. Orszag has remarkably instructed his colleagues to: “be collegial . . . The future belongs to well-functioning teams, not individuals acting solo.”
It’s a refreshing and modern ethos built for Millennials and Gen Z’s that weren’t around to witness prima donna rainmakers. DD is keen to see if the boomers and Gen Xers of Lazard want to play ball with the outsider Orszag in what may be his most radical idea.
JPMorgan Chase has named technology mergers and acquisitions co-head Jay Hofmann and healthcare dealmaking co-head Ben Carpenter as co-heads of M&A for North America, according to an internal memo seen by DD.
Former Elliott portfolio manager Leo Markel and ex-ValueAct investor Daniel Urdaneta have launched a new London-based fund called Finch Bay Capital, per Reuters.
Barclays has named JPMorgan’s Christian Oberle as head of financial sponsors for the Americas and Credit Suisse’s Tom Vignon as a financial sponsors managing director for Europe, the Middle East and Africa.
RBC has revamped its European credit team, tapping Bank of America’s Georgio Gregoriou, Credit Suisse’s Marc Sánchez Roger and company insider Andrea Marcheggiano for senior roles.
Playing down the facts ExxonMobil began its public acceptance of climate change in 2006 under then-CEO Rex Tillerson. Behind closed doors, executives were pushing a different narrative, the Wall Street Journal reports.
Great expectations Some saw Arm’s listing as a positive sign for a laggard IPO market. But investors have always had the cash. It’s companies’ refusal to accept less than excessive valuations that clogged the pipeline, ex-banker Craig Coben argues in an Alphaville post.
LVMH’s big succession question With five children, Bernard Arnault faces difficult choices in divvying up his luxury empire and preserving his legacy, The New York Times reports.
Due Diligence is written by Arash Massoudi, Ivan Levingston, William Louch and Robert Smith in London, James Fontanella-Khan, Francesca Friday, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Antoine Gara in New York, Kaye Wiggins in Hong Kong, George Hammond and Tabby Kinder in San Francisco, and Javier Espinoza in Brussels. Please send feedback to firstname.lastname@example.org