Companies look to firm to determine what assets are worth
The Salter Group, best known for its valuation work on some of Hollywood’s largest transactions, found itself at the center of its own M&A deal earlier this year when advisory firm FTI Consulting bought a majority stake in the Century City-based company. Already a global business with 3,915 employees worldwide, FTI needed something very specific: entertainment expertise.
(From the pages of the April 9 issue of Variety.)
Based in Baltimore, FTI offers many of the services one would expect from an international consulting firm with more than $1 billion in annual revenue: investigations, litigation, mergers and acquisitions, regulatory issues, reputation management, strategic communications and restructuring. But advising Hollywood as it grapples with new distribution platforms, piracy and digital issues is a big business, and FTI wanted in.
Everyone from the major studios to individual producers is struggling with how new distribution platforms are shaking up traditional ones, and the Salter Group has made its name by helping them figure out the impact on the business: How much will a library be worth over time? How greatly are companies like Netflix eroding the pay television window? How much will a film be worth in international television if you can access it for free online?
“I think the margin of error has gotten smaller,” said Bob Osher, president of Sony Pictures Digital Prods. Osher has known partners Roy Salter, Patrick Russo and Eric Briggs since they founded the firm in 2003, and has dealt with them on a number of transactions at Sony. “It used to be that if you bet wrong on the asset, or your analysis was a little flawed, you could realize the value in many different places.” Today, with changing platforms that can blur business strategies, getting things right initially is more of an imperative.
The Salter Group may now operate under FTI Consulting, but the company continues to have a hand in almost every major entertainment transaction. Over the past decade, Salter Group says it has advised on more than 1,350 projects that have a combined value of $145 billion. The firm’s clients have included Legendary Pictures, the Walt Disney Co. and Sony, as well as New Regency and Lakeshore Entertainment.
“The Salter Group has provided services to Lakeshore and its lenders for more than 10 years in a variety of capacities, said Lakeshore founder and chairman Tom Rosenberg. “We value their expertise and industry insight.”
Their clients also include people looking to enter the business and those looking to exit it. A producer might seek advice on whether to sell a stake in a movie project, or a private equity firm might want help determining whether to invest in a new production company.
As credit markets continue to unthaw from the 2008 financial crisis, wary bankers need reliable assessments of the assets they lend against.
A big part of that is determining how much a library’s value has been realized on existing platforms, and how much remains to be gleaned from emerging ones. The sale of Miramax was an example to many industryites of how new digital distribution models and growing overseas television markets can revive older content. Disney sold the library in 2010 for $663 million. After inking numerous new distribution deals, it received a valuation of more than $800 million a year later.
Salter assisted Village Roadshow with its massive $1.1 billion refinancing last year, and valued Goldman Sachs’ 50% stake in television’s “CSI” franchise when the investment bank sold the asset to Content Partners last month.
“I think they have a very solid intellectual understanding of how media is consumed and how that impacts the value of content,” said Matthew Velkes, chief operating officer of Village Roadshow Pictures. “The business is changing much more rapidly … and therefore a firm like theirs is much more important than it was 10 years ago when you had much more simple, sequential windows.”
A big issue the partners attempt to evaluate is how much digital dimes are making up for analog dollars. New players like Netflix and Hulu, for example, may be making up for declines in DVD, but they may also encroach on the pay television window. And the Salter Group must try to evaluate whether that online availability will affect television licensing as the global TV business expands.
“They have a very good understanding of the revenue generated by VOD and subscription video-on-demand … and they have an ability to match that understanding (with) the valuation impact that has on libraries,” Village Roadshow’s Velkes said.
Russo said the evolving digital landscape is “part of the puzzle now,” and that he expects an increase in day-anddate release strategies between theatrical and exclusive digital platforms. “How this ultimately impacts the life cycle of a film, we are not sure yet. It’s still a little too early in the game.”
In assigning values to assets, the Salter Group doesn’t just simply come up with spreadsheets.
“Information isn’t just numbers, it’s the explanation for those numbers,” Salter said. Part of forecasting, according to the partners, involves figuring out how to project what a company might earn on emerging platforms based on its own history.
“The most challenging are the situations where someone says, ‘We’ve done nothing, but we would like you to expect that we will do amazing things in the future,” Briggs said.
Salter looks at distribution, corporate structure, management teams and other variables to calculate risk and forecast value. But the company isn’t a broker, and the partners advocate their own advice, not a particular deal. “It’s not intended to be aggressive. It’s not intended to be conservative. It’s simply intended to reflect what we believe — giving consideration to where the world is today and where we see it going tomorrow,” Russo said.
(Sean Fitz-Gerald contributed to this report.)