2ND UPDATE 2:20 PM: Sources are now telling me the investment in CAA is tantamount to “hundreds of millions of dollars” in equity and TPG-lined up debt based on a huge valuation of the agency more than double what’s been previously estimated as its worth. One insider this afternoon put the number at $350 million against a valuation of $1 billion. Yikes!
UPDATE 1 PM: News release below. In it, CAA disclosed that the agency and TPG ”have committed to create a $500 million pledge fund, providing access to significant capital for future investments”.
EXCLUSIVE 11:40 AM: This very lucrative deal for a 35% non-controlling minority interest in CAA with the TPG Capital private equity investment firm follows seven months of tough negotiations with potential financial partners pursued by CAA. It represents a big cash infusion considering that CAA’s revenues were around $300 million in 2007 before the financial crisis struck. But the $105M figure estimated by others is only about half the $200M that CAA was initially seeking. The investment was finally wrapped up last night and an announcement will go out later today. ”It’s a real double down play. CAA saw an opportunity to have a partner that has capital and expertise to develop its company faster and stronger and smarter,” an insider tells me. “That’s why it took so long. CAA wanted to be careful about it.”
This liquidity event puts CAA on excellent financial footing after many insider reports of cash flow problems. Most importantly, it allows the tenpercentery’s 2nd generation of owners — one-time Young Turks: Bryan Lourd, Kevin Huvane, Richard Lovett, Doc O’Connor — to monetize their individual pieces of Hollywood’s most powerful agency. But are they going to cash out and leave? My sources deny their exits are imminent and insist that the CAA quartet have all signed “long-term commitments”. Additionally, “part of the proceeds will be distributed to the entire company. Everyone who works in this organization will get money, though some more money than others. It’s exciting to be able to do that,” my insider tell me.
Another reason for the cash need is that CAA has been self-financing its nearly 5-year-old sports business begun by Lovett, despite the fact it’s a notoriously expensive enterprise because of the size of upfront investments in players that don’t pay off for many years. And the powerhouse sports agents which the agency has assembled have been not-so-quietly complaining about their compensation packages. CAA also plans to use the money for expansion into sports production, video games, and other arenas.
Today’s news follows two big investments made by rival WME Entertainment with experienced partners creating new businesses: a worldwide marketing business, and separately a global media fund of which $300M of the desired $500M is already raised. These are two very different strategies, but both demonstrate how Hollywood agencies want and need to reinvent themselves. CAA is not the first major tenpercentery to take an investor: Connecticut-based Rizvi Traverse Management’s equity fund operator Suhail Rizvi is a substantial investor in ICM.
TPG Capital (formerly known as Texas Pacific Group) is one of the largest private equity investment firms globally, focused on leveraged buyout, growth capital, and leveraged recapitalization investments in distressed companies and turnaround situations. It’s best known in Hollywood for its doomed acquisition of MGM in 2004 as part of a partnership led by Sony Corporation of America, Comcast, Providence Equity Partners, and other investors. The $47 billion firm, founded in 1992 by David Bonderman and James Coulter, invests in a broad range of industries including consumer/retail, media and telecommunications, industrials, technology, travel/leisure and health care.
CAA had initially focused on KKR — Kohlberg Kravis Roberts & Co, the NYC-based private equity firm — for a whopping $200M in Hollywood’s most powerful agency. But the recession-hit marketplace couldn’t justify that investment, especially not after the NYC-based private equity firm held a much anticipated public stock offering on July 15th that fell flat. The listing would have enabled CAA to form a financial alliance that might have backed its action outside traditional Hollywood agenting. But as a KKR bigwig said was the reason for not going forward: “The town is too complex for me.” (Forget it, Jake. A far as KKR is concerned, Hollywood is Chinatown.) So it was always known that CAA would go elsewhere for this cash infusion — though my insider insists the TPG negotiation predated KKR’s. Then again, it was half as big.
It’s interesting that when I first wrote about the KKR’s possible investment in CAA, the agency flatly denied it was a liquidity event for the partners. And now my sources are readily acknowledging that was a big motivation for selling off 35%. Lovett, considered a lifer in the tenpercent biz, has pressing financial needs because of his still-not-final divorce and is responsible for over-spending and thus over-extending CAA’s financial resources. Expanding into the expensive sports biz was his idea because he hero-worshipped IMG founder Mark McCormack. Lourd has always said he wanted to become bicoastal as soon as his daughter with Carrie Fisher turns age 18 this year, and has had offers of a role in the corporate world. Huvane has always talked about wanting to put his own life before his clients’ in the not-so-distant future, and the life-of-the-party agent thinks that time is near. O’Connor has been complaining about how tired he is of the agency business and its constant demands.
And there’s always the next generation of younger agents coming up through the ranks who want more of a stake in the agency than the partners want to give them. The same thing happened in 1995 when CAA founding partners Mike Ovitz, Ron Meyer and Bill Haber turned over the agency to Lourd, Huvane, Lovett, and O’Connor who were threatening to leave. Those four were once seven, but the CAA partner ranks have been thinned by eliminating first Tom Ross (once head of music), then Lee Gabler (once head of television), and most recently Rick Nicita (senior talent agent). It bodes well that CAA has shown it can navigate the rough seas of the agency biz after principals exit.
UPDATE: Here is the 1 PM press release:
LOS ANGELES (October 1, 2010) – Creative Artists Agency (CAA), the world’s leading entertainment and sports agency, announced today that it has formed a strategic partnership with global private investment firm TPG Capital. TPG has invested an undisclosed sum for a non-controlling 35% interest in the agency.
Additionally, CAA and TPG have committed to create a $500 million pledge fund, providing access to significant capital for future investments. TPG has more than $47 billion under management.
“CAA is the clear leader within its industry and the talent agency most trusted by successful actors, directors, writers, producers, musicians and athletes,” said David Bonderman, TPG Founding Partner. “Over its history, the company has demonstrated a consistent ability to identify nascent opportunities and expand into new markets. CAA’s outstanding management team has built the gold-standard franchise in their industry based on a culture of exceptional client service, and we look forward to supporting CAA at this exciting inflection point in their evolution as they look to expand their operations and services around the globe.”
In a statement, the CAA Managing Partners said, “CAA exists for one reason – our clients. Our new relationship with TPG will help us continue to build momentum in the work we do for clients every day. With TPG’s experience and resources, this could be accomplished through capital investments that build upon our full-service platform, new business leads developed through TPG’s extensive worldwide relationships, expert insight on the international marketplace, and a myriad of other ways.”
The managing partners have made long-term commitments to continue leading the agency.
CAA President Richard Lovett added, “We have known and respected the leaders of TPG for a long time, and believe this strategic partnership marks a new starting point for the agency’s future.”
In recent years, anticipating the significant technological and market changes that have impacted the entertainment and media industries, CAA strategically expanded into complementary new businesses and added extensive resources to deepen its unique, 360-degree approach to servicing clients. As a result, CAA has developed profitable new divisions while continuing to expand the role of talent representation.
CAA entered the sports business in 2006 and within two years was recognized by leading industry trade publication Sports Business Journal as “the dominant sports agency in the United States.” Today, it represents more than 650 of the world’s most important athletes, coaches, broadcasters, teams, leagues, venues and marketers, from Derek Jeter, Shaun White, Novak Djokovic, and Cristiano Ronaldo, to the New York Yankees, Chelsea FC, and the NCAA’s Pacific-10 Conference. CAA Sports won the highly-coveted assignments to sell major, multi-year corporate partnerships for the new Yankee Stadium and the soon-to-be renovated Madison Square Garden, and has since closed nearly 20 such deals.
In 2008, in partnership with the former team from Merrill Lynch’s Media and Sports Structured Finance Group, CAA created an investment bank that has since raised or advised on more than $2 billion in media and sports transactions. The bank, Evolution Media Capital (EMC), has been at the center of many significant deals, from capital raising and structuring, to broadcast rights negotiations and stadium financing, to mergers and acquisitions. Among many other transactions, it represented the successful buyers of Major League Baseball’s Texas Rangers; structured Sony ATV’s $300 million of debt financing for its 50% ownership of the Beatles library; advised on the establishment of animation film studio Illumination, which recently released the film “Despicable Me,” earning $344 million at the box office to date; raised and structured the debt for a $245 million film fund for Participant Productions; raised $100 million for a National Geographic film fund; and conducted the sale of Authentic Entertainment, a CAA client and leading television production company, to media entity Endemol.
The agency also has grown internationally, with a presence around the world, including offices in London and China, where CAA represents the top entertainment talent in one of the world’s fastest growing economies. CAA developed a digital media practice that creates new opportunities for clients within this emerging marketplace, represents technology companies like Cisco and IMAX, and incubates Internet companies, including FunnyOrDie.com, the leading destination for comedy on the web, with more than 24 million video views per month. CAA Marketing serves clients such as Coca-Cola, Dell, and Mattel, and CAA Games represents the world’s top game designers with total sales exceeding $8 billion.
Lazard Freres & Co., LLC and Rothschild Inc. served as financial advisors to CAA. Wachtell, Lipton, Rosen & Katz served as legal counsel to CAA. Credit Suisse was financial advisor to TPG. Cleary Gottlieb Steen & Hamilton LLP and Loeb & Loeb served as legal counsel to TPG.
Creative Artists Agency (CAA) is the world’s leading entertainment and sports agency, representing many of the most successful professionals working in film, television, music, sports, video games, theatre, and the Internet, and provides a range of strategic marketing and consulting services to corporate clients.
CAA Sports represents more than 650 of the world’s top athletes and professionals in football, baseball, basketball, hockey, soccer, tennis, golf, action sports, coaching and broadcasting, and advises many leading sports organizations on sponsorship deals, venue marketing partnerships, corporate consulting, and major financial and media rights transactions through its partnership with CAA’s affiliate investment bank Evolution Media Capital. The division has more than 100 employees with executives and player agents based in numerous international territories, including the United Kingdom, Portugal, Sweden, Russia, Japan, and Israel.
Editor-in-Chief Nikki Finke - tip her here.


so now about 1/3 of every working client’s commission is going to some rich hedge fund guys living in NY and Texas.
and the agency’s owners just got some cash to buy larger houses in malibu.
seems like nothing much changes in this town.
I remember when ICM got a big chunk of change years ago and what did they do with it? I can’t remember. Agencies are service business’s and by nature their multiple will always be low so having cash would allow them to create real assets. So will they invest in their own talents production companies, finance indie movies, buy production houses?? All these ideas have a conflict that will eventually get them in trouble, the only thing I can think of them buying is catalogues or invest in intellectual property. But what’s out there for sale?
Say what you want but when Ovitz ran that place he was innovative, Now when I look at CAA I see guys that are snobs and don’t pay attention to details. I guess we shall see.
ok, now there are details – thanks, Nikki!
Hollywood always finds a new sucker.
This week it’s TPG.
TPG is hollywood crazy all of a sudden. first katzenberg’s email now following up and going in when KKR wouldn’t.
these fellas must just be dying to walk on some red carpets.
does this mean they will stop holding assistants back from making overtime? It’s embarrassing to book a $675/night hotel room for a boss then be kicked out of the building right at 7pm so that the agency can save $15 for an hour of overtime.
Wow! Nikki, you finally wrote something flattering about CAA! Shocker.
if only the great and powerful Irv Weintraub / WMA had thought about dispersing some of that building money back in 2008, there wouldn’t be so much ill will still to this day…
The press release seems rushed and poorly written. Odd they didnt mention one movie star they represent.
Do you remember what happened when DZW mentioned “one movie star” during that New Yorker interview? Mentioning one or two stars in a press release is just a disaster waiting to happen.
The rich get richer.
Great! The inmates now have enough money to enlarge the asylum.
Certainly glad I am not a stockholder in the company that just threw a lot of
money into the wind by investing with amateurs.
Another way to understand this: The agency business is hurting badly. We all saw the layoffs in 2009 and early 2010. I hear there will be more layoffs coming at other agencies too as the business contracts some more. CAA’s cash move now is both proactive and defensive. It allows them to expand while others will have to contract or stop growth, and it builds a wall of financial protection. It is a smart move for their business.
Wow!
If the numbers are correct – an amazingly low valuation for CAA.
In the late 1980ies, Coke offered Ovitz 200 million for CAA. He turned them down. Now almost 25 years later the company is only worth 300 million!!! What is that – a less than a 2% annual appreciation?
The jury just came in. The guys who took over CAA may be great agents. Hard workers. Dynamic leaders. But as businessmen they have utterly failed.
Surprised:
You’re way off, its cash plus debt for the stake, so the valuation is probably much, much higher.
It’s very difficult to place a value on a company with virtually no assets, regardless of how revenues look. Essentially, any investor is banking on the accounts receivables continuing to grow and in the case of agency commissions, that can be incredibly difficult to estimate/it fluctuates constantly. The assets walk out the door every day and may or may not walk back in the next…
Surprised!, you’re doing the math incorrectly. TPG bought a 35% interest in CAA. If they they committed $300M in equity, that means CAA is being valued at $1 billion.
that photo of dickey love always cracks me up.
Thhe beginning of the end….
@ Surprised….CAA was valued at 1Billion dollars not 300Million.
From NYTIMes Dealbook: “As part of the deal, the two companies agreed to control a $500 million fund earmarked for future investments like sports-related businesses. Other terms of the deal were not disclosed, though people briefed on the matter said that the investment is consistent with reports valuing the agency at more than $700 million to $1 billion.”
guys…these are the same clowns who own a piece of mgm studio…you would think they had enough of the red carpet rides…i think they just lost 500 million at mgm and they are back to lose another 500 million…i pray that our pension funds have not invested with these texas guys
Does this mean we don’t have to pay for parking anymore?
A little baffled by this. The weasels at CAA cash out for a low ball evaluation because that’s the best they can get; beggars can’t be choosers.
But why on earth does TPG do this deal? I don’t think of these as dumb guys and yet I can’t understand why they’d risk any of their fund, even on a relatively tiny investment like CAA. What’s in this for TPG? LBO shops only buy when they have a very clear path to sell for more later. Can’t imagine they could IPO this pig, nor could they lever it up then pay themselves a huge dividend with the proceeds. Or could they do these?? What is TPG’s exit strategy here??
inflate valuation through ibank partners… then dump
Perhaps it is vanity: they want some footing in Hollywood for ego’s sake, and MGM didn’t turn out the way they wanted.
More likely, I think that after MGM they wanted to make their next Hollywood play a smart play. Was CAA that smart play in and of itself, from an investment standpoint? Doubt it. I’d say their logic is that the combination of CAA’s multiple tentacles reaching in and around all elements of entertainment/media and TPG’s deep pockets will allow for the type of LBO within the industry you mention above.