“We have money to spend, and it’s a relative world” – Deadline

The sources of funding from Hollywood and the media industry have tended to be cyclical, with new money refreshing the old every few years. The current round of private equity investing, however, runs counter to this story and could prolong the wave of mergers and acquisitions for years to come, negotiators say.

Transactions such as Reese Witherspoon’s $ 900 million takeover of Hello Sunshine, via a partnership between Blackstone and former Disney executives Kevin Mayer and Tom Staggs, have made the language speak. The exorbitant valuation (apparently at over seven times the turnover) of a company with few owned assets has sparked speculation about the foam in the market. Yet virtually all companies claiming intellectual property are said to be for sale, wholesale or in parts. Vendors include SpringHill, Imagine, and Legendary by LeBron James. Even though the deal is not privately funded, Amazon’s ongoing acquisition of MGM for $ 8.45 billion shows the almost insatiable appetite for content in a burgeoning streaming market.

“The private equity mindset is, ‘We have money to spend, and it’s a relative world,’ David Lazarus, partner of real estate investment bank Eastdil Secured, said in an interview with Deadline. The bank has worked with Blackstone and a number of other private equity firms on real estate transactions, another booming industry. Among his projects is Wildflower Studios, a $ 400 million sound stage complex in Astoria, Queens, supported by Robert De Niro.

“Just as they believe with biotechnology, they believe there is a real opportunity” in entertainment, added Stephen Somer, CEO of Eastdil. “The model has gone from a distribution – a ‘push’ format – to a ‘feed’ format, where consumers say what they want to watch when they want to watch it. Technology, he continued, “is the big driver. We don’t see this slowdown anytime soon.

Macroeconomic conditions are helping to pump oxygen into the accord oven. Interest rates are near historic lows and the economy has rebounded from a Covid-19 recession that only lasted a few months. Federal Reserve Chairman Jerome Powell recently indicated that the central bank may hike rates in 2023 but is currently using other levels to control the threat of inflation.

“Borrowing is cheap,” noted a veteran of the M&A trenches, who spoke to Deadline on the condition that he was not identified due to his ties to a number of pending deals. Private equity firms have also been opened up to individual investors, one of the reasons the amount of private financing for housing has reached a record high of $ 1.5 trillion. “People are committed to funds, but they are not withdrawn, so they are looking for deals,” continued the negotiator. “There’s a lot of money looking to get off the sideline and get into the game. And, in the content space, you have a frenzy with streamers looking for more content.

Between late 2019 and March 2021, six major streaming services went live, Apple, Disney, NBCUniversal, WarnerMedia, Discovery and ViacomCBS. A seventh – Quibi – quickly fizzled out, but not before sucking up $ 1.75 billion in start-up capital. Streaming players chasing Netflix and Amazon Prime Video, a strategic 180-degree turn from when they were just selling their programming to them, are no longer limited by storage space. A popular franchise can be operated in more directions than ever before.

The financiers are attentive to the evolution of the market, in search of an upside potential. “As PE firms roll out their dry powder,” consulting firm Deloitte noted in a recent report, “they appear to be looking very closely at the future prospects of target firms and portfolio companies.” Their involvement is also occurring against a backdrop of industry consolidation, with mergers like AT & T-Time Warner, Disney-Fox, and Discovery-Scripps in recent years creating fewer big players even as consumer demand grows.

Unlike previous funding rounds, which supported media and entertainment companies that operated under their own clubby rules, Hollywood is now suing Big Tech. Investing in Hello Sunshine places Blackstone and its partners in the podcasting and streaming industry, effectively in the mix with Spotify, Apple and Amazon. While this is hardly a guarantee of success, it is a more attractive prospect than in previous eras, when the risk of being “dumb money” in a Hollywood deal was ubiquitous.

Echoing comments from Mayer and Staggs after the Hello Sunshine announcement, Lazarus points out, “Streamers have a lot more data… It makes an operation like Hello Sunshine interesting. He has a special audience. Reese’s Book Club, launched by Witherspoon in 2017, shows similar potential to Oprah Winfrey’s with 2 million Instagram followers. “They have great data feedback from viewers.”

Boom skeptics say it is nothing more than the fulfillment of former Fed Chairman Alan Greenspan’s famous warning about the “irrational exuberance” of early Internet investors. They point to the recent sideways movement in the oversaturated US PSPC market as a sign that the good times cannot last. These specialist acquisition companies, also known as ‘blank check’ companies, brought 248 companies public in 2020, more than four times the level of 2019. (Mayer and Staggs are among the many veterans of the media in the SPAC game, with former CBS CEO Joe Ianniello, BuzzFeed and former Hollywood executives Harry Sloan and Jeff Sagansky.)

The structure of PSPCs, which have evolved over previous economic cycles, is inherently riskier given their two-year time horizon for investors. Market conditions must be favorable for public offers. Endeavor, the content and agency giant backed by Silver Lake and other private funds, finally got its IPO last spring after choosing to pull it out in fall 2019, citing market conditions. A SPAC deal for Vice Media was recently stalled due to investor concerns about the valuation. Bidding wars between PSPCs have become counterproductive, prompting investors to look to emerging markets overseas. said to the Wall Street newspaper.

Somer generally distinguishes the open rules of the game for private equity from the specific mandate of an SPAC, arguing that the former is less constrained by market fluctuations or other factors. “When conditions improve or deteriorate, there is an opportunity,” he said.

While there are still doubts about the sustainability of the private equity wave, for Hollywood veterans healing their wounds at Netflix’s disruptive rise to dominance, this is a development. welcome. Global private equity assets under management are expected to reach $ 5.8 trillion by 2025, according to Deloitte, doubling in a decade. “There are only a limited number of companies that have a proven track record of creating quality content,” observed the negotiating vet. “If they become known as a reliable supplier, they will be bought. “