Sale of stake to TPG will enable future investments

CAA wants to grow and diversify its business operations. Now it has the ready capital to do so after reaching a deal to sell a 35% stake in the agency to private investment firm TPG Capital.

CAA and TPG described the pact as a strategic partnership, which also includes a commitment from both to create a $500 million pledge fund designed to enable future investments. As part of the deal, CAA’s six managing partners — Richard Lovett, Bryan Lourd, Kevin Huvane, Steve Lafferty, Rob Light and David O’Connor — have signed new, long-term contracts, believed to run at least five years, with the agency.

The deal was driven by CAA’s desire to diversify into other businesses that are complementary to its core tenpercentery biz. It’s already been on an expansion kick with its aggressive plunge into the sports business and in opening offices in overseas markets.The association with TPG, one of the largest private investment shingles with $47 billion in capital, will also keep CAA plugged into opportunities on the M&A and investment banking circuit. Some of the money from the TPG investment will be redistributed to the agency’s staffers, which number about 1,000 worldwide.

TPG said its interest in partnering with CAA was driven by the percentery’s track record in the cutthroat agency biz and the strength of its management team, headed by prexy Lovett.

“Over its history, the company has demonstrated a consistent ability to identify nascent opportunities and expand into new markets,” said David Bonderman, TPG founding partner.

CAA insiders believe the influx of cash will rev up the already formidable agency by allowing it to make deals and investments without having to rely on its own cash flow or debt for financing. Industry observers and agency rivals were quick to interpret the deal as providing a big payout and a five-year exit strategy for some of the managing partners — a scenario strongly disputed by people close to CAA’s leaders.

Lovett said that the CAA toppers “believe this strategic partnership marks a new starting point for the agency’s future.”

In a statement, the managing partners emphasized that CAA would look to grow in areas that augment its talent-repping capabilities. TPG and its deep pockets will help those efforts “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 pricetag for TPG’s 35% stake was not immediately clear, but in recent months as CAA had fielded proposals to investors for partnerships, the percentery was valued as high as $700 million-$900 million. CAA’s seven-member board will grow to 10 with the addition of three TPG reps, including co-founder James Coulter.

TPG’s previous showbiz forays include being part of the Sony-led group that bought MGM for $5 billion in 2004.

CAA has long been regarded as a monolith in showbiz, a wildly successful company that rarely opened its doors to outsiders. But the agency’s interest in pursuing outside investors comes as another sign of the changing landscape for tenpercenteries in the traditional film and TV markets.

CAA’s sale of a minority stake to TPG comes 16 months after the William Morris Agency and Endeavor shook the agency universe by merging — challenging CAA’s longtime status as showbiz’s leading tenpercentery. In 2005, ICM underwent a $100 million recapitalization in a deal with Rizvi Traverse Management and Merrill Lynch. CAA has already sought to extend its reach beyond Hollywood, most notably with its push into the sports business in 2006, when it began recruiting top-tier sports agents and their clients. CAA Sports now reps more than 650 notable names in the sports world, and it handles corporate sponsorship deals for Yankee Stadium and the soon-to-be-renovated Madison Square Garden.

In announcing the TPG deal, CAA also disclosed more detail than ever before on its 2-year-old partnership in Evolution Media Capital, an investment bank it formed with the former leaders of Merrill Lynch’s Media and Sports Structured Finance Group. Evolution has since raised or advised on more than $2 billion in media and sports transactions, including repping the buyers of Major League Baseball’s Texas Rangers; structuring Sony ATV’s $300 million in debt financing for its 50% ownership of the Beatles library; advising on the creation of Chris Meledandri’s Universal-based Illumination Entertainment animation studio; raising and structuring the debt for a $245 million film fund for Participant Prods.; and raising $100 million for a National Geographic film fund.

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