WME Expands Playing Field With IMG Acquisition

Deal extends showbiz agency's reach into sports, marketing, event production and management

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WME is poised to dramatically expand its business portfolio and international presence now that the showbiz powerhouse and its private equity partner have clinched an agreement to buy sports talent and management agency IMG Worldwide for an estimated $2.3 billion-$2.4 billion.

WME toppers Ari Emanuel and Patrick Whitesell will continue to serve as co-CEOs of the combined WME-IMG. Sources said IMG will remain a largely autonomous operating unit under the the WME-Silver Lake umbrella, although there is sure to be some consolidation of administrative and back-office functions. IMG brings earnings of about $160 million a year to the WME-Silver Lake portfolio.

The final points of the acquisition were hammered out during the past two days in marathon negotiating sessions between WME and Silver Lake reps and bankers repping IMG parent Forstmann Little. The bidding during the past week narrowed to three suitors, all with showbiz connections. WME-Silver Lake fielded the highest bid, followed by offers just below $2 billion from the combo of Chernin Group and CVC Capital and ICM Partners with Carlyle Group.

By vaulting WME into the sports, media rights and fashion biz, IMG also makes the agency more competitive against its biggest Hollywood rival, CAA. CAA has spent the past decade building up its sports business, in part through a host of high-level agent and client defections from IMG.

Financial terms of the acquisition pact were not disclosed, but WME-Silver Lake revealed that Mubadala Development Co., an investment entity backed by the government of Abu Dhabi, will be a “minority investor” in the transaction. Mubadala (which means “exchange” in Arabic, per the company’s website), has an investment portfolio of $55 billion, including positions in such blue-chip companies as HP, General Electric, Shell and Rolls Royce. Sources describe Mubadala’s stake as very small.

None of the principals in the transaction would comment on the deal beyond the prepared statements. The prospect of Silver Lake financing such a big transaction has raised questions about whether it becomes the controlling shareholder in the combined WME-IMG. Silver Lake bought a 31% stake in WME in 2012 in a deal designed to allow the percentery to beef up its investments in digital and new media businesses.

WME leaders have been adamant that its 2012 agreement with Silver Lake was explicit in preventing the private equity company from exerting any management control over the agency. That agreement remains in force with the IMG transaction, sources said. Nonetheless, the deepening of the ties between WME and Silver Lake inevitably heightens the potential for conflict should the agency and the investor face conflicting agendas down the road, particularly if Silver Lake seeks to cash out its investment.

But for now, the partners are focused on the potential of growing WME through the absorption of IMG. Deal will catapult WME into a range of new businesses, including orchestrating deals for college sports marketing and sponsorship partnerships, event production and management and media sports rights pacts in the U.S. and abroad. IMG also has a complementary talent representation business that handles athletes, models, fashion personalities and a range of other clients in media sectors where WME is not as active.

“IMG has incredible strategic value to WME. The brand’s global reach, outstanding management team and leadership across sports, fashion and media are a strong complement to our business,” said Whitesell and Emanuel in a statement.

“We are honored to build on the legacy of (IMG) founder Mark McCormack and recent owner Ted Forstmann. Supported by Silver Lake’s continued partnership, WME and IMG together will deliver a broad range of opportunities and resources to the companies and talent we collectively represent.”

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WME and its private equity partner Silver Lake touted the deal as creating “a unique global sports and entertainment platform, operating across North America, Europe, Asia, South America and Africa.”

WME’s pursuit of IMG is a sign of changing times for Hollywood’s largest talent agencies. Showbiz percenteries are under pressure to diversify their revenue base as margins for talent in traditional film and TV deals are squeezed by the handful of cost-conscious congloms that dominate the market.

“IMG is well positioned in large and expanding end markets, with significant and untapped potential for growth. We look forward to building on IMG’s illustrious heritage by accelerating its existing growth plans and expanding the company’s digital platform,” said Silver Lake managing partner Egon Durban. “This investment extends our successful partnership with Ari, Patrick and the WME team as the company continues its transformation into an integrated player across the new media landscape.”

IMG has 3,500 employees working in more than 30 countries. The company in involved with 11 sports and entertainment events per day, according to a release from Forstmann Little on the sale. WME has 1,000 employees, primarily in Beverly Hills and New York, along with offices in Miami, Nashville and London.

WME is not anticipating the same level of layoffs and restructuring that it experienced after it was formed through the 2009 merger of William Morris Agency and Endeavor. At that time, the agencies had a great deal of overlap in agents and support staff, in contrast to IMG’s operations. But because WME doesn’t have the expertise in the areas of marketing, rights deals and event management, some IMG senior leaders will likely be in a position to command rich new deals. IMG CEO Michael Dolan is expected to depart after the transaction is concluded in the next few months.

WME announced the deal to staffers with a memo issued Wednesday morning. The agency has a long-planned retreat set for early January where the deal and its impact on WME will be discussed in detail.

Forstmann Little acquired IMG for $750 million in 2004, following the death of company founder McCormack. Under Forstmann Little’s direction, IMG expanded its sports marketing and services operations well beyond its stronghold of talent representation.

But in recent years, a number of high-level IMG insiders have been pressing for an IPO or a sale to allow them to liquidate their interests. Forstmann Little topper Ted Forstmann died in 2011, setting the stage for the IMG sale. The company attracted a range of suitors, including CAA, when initial offers were solicited in September, but the pool winnowed to three by the time the second-round bids were submitted last week. Forstmann Little let the contenders know it intended to complete the sale by year’s end.

“We are confident that this fine company will continue to flourish and grow under the leadership of Silver Lake and WME,” said attorney Mark MacDougall, partner in Akin Gump, who helped orchestrate the sale with Forstmann Little bankers Evercore and Morgan Stanley.

“We would like to express our appreciation to our limited partners, who have shown great patience and support of IMG and its management through the years, helping lead to this successful outcome,” said Winston Hutchins, the remaining general partner of Forstmann Little.

IMG’s most profitable business, according to sources familiar with the company, is its college sports wing that controls marketing rights to 90 universities and conferences, including two-thirds of the Bowl Championship Series schools and 49 of the 50 largest U.S. markets.