William Morris, Silver Lake buy IMG to boost sports business

Reuters

By Greg Roumeliotis and Liana B. Baker

NEW YORK, Dec 18 (Reuters) - Talent agency William Morris Endeavor Entertainment LLC and private equity firm Silver Lake will acquire IMG Worldwide Inc in a deal aimed at positioning William Morris as a bigger force representing talent in the lucrative sports market.

Financial details were not disclosed in the companies' statement on Wednesday announcing the transaction, but Reuters previously reported the deal to be worth about $2.3 billion. Mubadala Development Company will be a minority investor in the transaction.

IMG, whose clients include top tennis player Novak Djokovic and super model Gisele Bundchen, will give a significant boost to William Morris' sports business as Hollywood agencies increasingly focus on top sports talent where rewards can be sizable.

William Morris already represents some of Hollywood's biggest actors and top names in music. William Morris merged with the Endeavor talent agency in 2009 to become one of Hollywood's biggest players.

Until now, William Morris had focused mostly on TV and movie stars like Ben Affleck and Denzel Washington and moving into entertainment-related areas such as advertising.

The IMG deal gives William Morris Co-Chief Executive Ari Emanuel a platform to compete even more aggressively against rival Creative Artists Agency, the largest Hollywood agency.

In 2006, CAA expanded heavily into sports representation and today represents major sports figures, including National Football League quarterbacks Peyton and Eli Manning and basketball stars Chris Paul of the Los Angeles Clippers and Carmelo Anthony of the New York Knicks, according to its website.

Representing sports stars is desirable as TV and movie stars bring in smaller paychecks and studios reduce the number of films they produce. Athletes are in demand for multimillion-dollar endorsements and licensing deals.

IMG, founded in 1960 when it signed golfer Arnold Palmer, has 3,500 employees operating in 30 counties. William Morris, headquartered in Beverly Hills, California, has more than 1,000 employees and offices in New York, Nashville, London and Miami.

The combined companies are aiming to cut costs between $50 million and $100 million. IMG generates earnings before interest, taxes and amortization (EBITDA) between $180 million and $190 million, according to a source familiar with the matter.

William Morris, in which Silver Lake acquired a minority stake last year, has EBITDA of $80 million to $100 million and very little debt, according to the source, who asked not to be identified discussing confidential financial information.

While the acquisition makes strategic sense for William Morris, it would have to be well executed to avoid losing clients and to maintain revenue while cutting costs, the source said.

The planned purchase of IMG will be reviewed by the Justice Department or the Federal Trade Commission to ensure it complies with antitrust law. It will likely win approval because there are a fair number of competitors in the field and the two companies have different specialties, said Jamilla Ferris, formerly of the Justice Department and now at Hunton and Williams LLP.

"At face value, it seems like they're really operating in different markets and there's a lot of competition here," she said. "It seems fine to me but you never really know what the documents say."

The sale of IMG was driven by the trustee running the estate of Teddy Forstmann, whose private equity firm, Forstmann Little & Co, acquired IMG for $750 million in 2004. The $2 billion plus price tag creates a significant return for investors.

William Morris beat out a consortium of talent agency ICM Partners Inc and private equity fund manager Carlyle Group LP , which were also finalists in the sales auction. Also bidding was buyout firm CVC Capital Partners Ltd, which had teamed up with Chernin Group LLC, Reuters previously reported.

The different cultures at the two companies may, however, be a challenge to integrate because IMG is centered on sports and William Morris is steeped in Hollywood, the person said.

William Morris is run by Ari Emanuel, brother of Chicago Mayor Rahm Emanuel, and Patrick Whitesell.

Forstmann Little has held onto IMG longer than a typical investment period for private equity, and for years it has rebuffed overtures from prospective buyers. Buyout interest increased following Teddy Forstmann's departure in April 2011 as IMG chairman and chief executive. He died later that year.

Buyers that had approached Teddy Forstmann included former Yahoo CEO Terry Semel, who was willing to pay $1.5 billion in 2008. Sources told Reuters at the time that Teddy Forstmann wanted at least twice the amount.

Silver Lake and William Morris Endeavor were advised and financed by J.P. Morgan, Barclays, RBC Capital Markets and Deutsche Bank Securities Inc. and advised by The Raine Group, Dean Bradley Osborne, Lazard, Simpson Thacher & Bartlett and Paul, Weiss, Rifkind, Wharton & Garrison. Evercore and Morgan Stanley served as the financial advisers to Forstmann Little.

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