Talent Agencies Banks Uneasy Pact

Giant mergers in the tenpercentary biz may trigger layoffs, IPOs and greater public scrutiny

Agents are deal junkies by instinct. Thus with talent agencies feeling a major squeeze on revenues, insiders knew that a wave of dealmaking would be imminent — deals involving the agencies, not the talent.

Their expectations were realized, and the town’s agency landscape is fast changing — even its initials: WME is also IMG. CAA counts private equity heavyweight TPG as a minority investor. The talent agencies are becoming bigger and more corporate. Many jobs will be lost, expense accounts tightened, and some once-valued talent will have to shop for new representation. Banking sources say WME aims to find $100 million in cost savings from synergies, while IMG executives believe only $30 million to $40 million is feasible.

While the billion-dollar struggle for IMG grabbed the headlines, other agencies, too, are active on the dealmaking front. For instance, on Jan. 22, UTA acquired Richard Leibner’s powerful agency, N.S. Bienstock, which dominates the TV news business (Anderson Cooper, Bill O’Reilly, Megyn Kelly). Sources say UTA avoided the private equity route and closed the deal through a credit facility at City National Bank.

The bottom line: With every agency searching for new revenue streams, investment bankers are the biggest stars in town. Says one top banker: “We’ve traditionally kept our distance from the talent agencies because their core business seemed too small, their balance sheets too murky. And their principal assets — the top agents — went home every night.”

Now that assessment has changed. The upshot: not only some major deals but also, some believe, the inevitability of IPOs that will transform an entity like WME into a publicly held company. This could pump new capital into the business, but also cause discomfort. “When an agency goes public, bankers want to see contracts,” says one senior agent. “We agents hate putting a one-year contract in front of our clients. Suddenly the client has to ask himself, ‘Am I being properly represented?’ ”

As it is, the big agencies already are facing constraints on expense accounts and bonuses. “The bean counters from TPG are a presence at CAA,” says one source. Silver Lake is now the majority owner of WME-IMG after financing the IMG acquisition. ICM got a divorce from Rizvi Traverse in 2012 after years of struggles over the agency’s priorities.

Against this backdrop, Hollywood insiders were nonetheless startled when WME, lured by establishing a significant hold on the sports business, landed IMG — at a cost of $2.3 billion. “It was a mind-blowing offer,” said one investment banker. “There were effectively no second and third bidders.”

Banking sources expect mounting pressure from Silver Lake to reduce expenses, especially at IMG, to make the combined company attractive for an IPO. The cutbacks would also mark recognition that the overall sports representation business has become hyper-competitive — growth has stemmed from acquisitions of smaller agencies, not acquisition of clients. IMG has added pressure because some of its top agents have received offers from rivals. One such target is George Pyne, who was principally responsible for building IMG’s college business, its fastest growing (as opposed to the events business, which is flat).

WME remains silent on the prospect of a public offering, but such a move would not be unprecedented. Forty years ago, Freddie Fields quietly took CMA (later ICM) public but, as one longtime agent notes, “That was long before there was such public scrutiny.”

The fact that WME, once the William Morris Agency, is at the center of change strikes some industry veterans as especially ironic. Those in William Morris’ ranks long boasted of being the most hands-on of all talent agents. They pointed to the legendary incident when Mae West was traveling in Europe with her pet chimp and became worried about the animal’s stomach problems. Johnny Hyde, her William Morris agent, hurried across the Pond with a veterinarian at his side.

Things would be different now, sniffed a William Morris veteran. “That chimp today,” he said, “would have simply been emailed an Obamacare application form.”

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