CAA Sale to TPG Ups the Talent Agency Arms Race – With Wall Street Providing the Bullets

“It’s a great time to be in the agency business if you’re prepared to adapt to a rapidly changing climate,” says an agency veteran

Last Updated: October 22, 2014 @ 7:18 PM

The sale to private equity firm TPG of a majority stake in CAA has sent a ripple through the Hollywood agency world, as the competition to grow and diversify intensifies in what used to be a purely star-driven business.

From a practical standpoint TPG’s majority stake – which insiders tell TheWrap involved an influx of $200 million cash – will not significantly change the day-to-day management of the talent powerhouse.

CAA will still be run by the top partners Bryan Lourd, Kevin Huvane, Richard Lovett and David O’Connor, and will continue to represent much of the Hollywood A-list including Will Smith, Tom Cruise, Jennifer Lawrence, Scarlett Johansson and Robert Downey Jr.

See Photos: Party Report in Pictures: Katie Couric, Josh Elliott and an Engagement at CAA’s TV News Party (Photos)

But it does add to the adrenaline rush at other agencies around town, which are excited by the draw of Wall Street and Silicon Valley dollars into a business that big capital had traditionally shunned.

“It’s a great time to be in the agency business if you’re prepared to adapt to a rapidly changing climate,” said one agency veteran, speaking on condition of anonymity. “It’s a tough time if either you don’t have the resources or the capability to adapt to a rapidly changing environment.”

Silver Lake Partners, the Silicon Valley hedge fund, now owns a majority stake in WME-IMG. TPG bought a 35 percent stake four years ago before upping its CAA ownership this week to 51 percent.

Read also: CAA Sells Majority Stake to TPG Capital

It was hard to miss the pulses racing at UTA, which as the third-largest agency must be hoping that it’s the next dance partner for private equity or hedge fund money. Last year, UTA hired an investment banker to help them find investors, and CEO Jeremy Zimmer and his agents spend significant time courting Silicon Valley.

“I think in the next year or so, something will happen for UTA as well,” said this individual.

Insiders at WME believe that the TPG investment has much to do with Silver Lake backing its purchase of the sports marketing giant IMG last year.

Acquisitions are probably on the horizon for CAA. Indeed, the word on the street is that CAA is looking to buy Infront Sports & Media, a sports marketing agency that is up for sale. The asking price is believed to be $1.2 billion, which means that once again TPG, led by David Bonderman, would be putting up cash to drive growth at CAA.

While Infront is significantly smaller than IMG, it would put CAA significantly in the lucrative sports marketing game, and Infront has won the marketing rights from FIFA for the next World Cup. It also has a significant winter sports business. (CAA declined to comment on any interest in purchasing Infront.)

Also read:CAA to Help Italian Soccer Giant AS Roma Find a Stadium Sponsor

That kind of diversification is now preoccupying what used to be a traditional service business.

Michael Ovitz

Getty Images

Big capital on Wall Street or Silicon Valley has traditionally not been interested in the agency business. Agencies are service businesses, highly volatile, dependent on personal relationships and hard-to-replace executives, be they Michael Ovitz in his time, or Ari Emanuel now.

“It makes no sense for non-agents to own an agency,” insisted one agency veteran to TheWrap. “Unlike any other business, you can’t just bring in someone from General Motors to represent your clients.”

And while TPG might try to sway CAA to tighten its belt, effectively it doesn’t have leverage, said this veteran.

“If Bryan Lourd says ‘I’m going to charter a plane to Italy to see my clients,’ And David Bonderman says, ‘You’re not chartering a plane. Take Alitalia,’ and Bryan says, ‘That’s not the way I do things,’ what is Bonderman going to say? That’s what no one is putting into the mix. That’s the thing that makes no sense.”

Also read: Leaked! Inside Details of $2.45 Billion WME-IMG Financing and Why an IPO May Loom (Exclusive)

All of the insiders across the agency world agreed that CAA is likely to use the influx of cash to lock down its non-partner talent, granting big bonuses and rich five-year contracts to its most valuable agents who are not partners, including Joe Cohen in the TV department, Beth Swofford and Todd Feldman in the literary division.

CAA has a number of other choices ahead. Most think that an acquisition to diversify out of the representation business is going to be next, since taking in this cash – which includes a requirement to pay TPG from its net revenue every year – requires producing significant growth to result in a win for the partners.

“CAA is not diversified enough to go public with what they have now. They are pure representation in sports and movies.,” said one knowledgeable observer. “They’re going to have to go buy something that diversifies them. And then they’ll try to sell privately or take it public.”

That, or TPG may itself go public.

Regardless of that outcome, the agency landscape is not done shifting.

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