Private Equity Changing Agency Biz

Private equity firms have poured hundreds of millions into agencies including CAA and WME in return for majority stakes and hopes of huge payoffs. A recent Los Angeles Times piece on the subject noted that the cash influx is forcing agencies to diversify and agents to adapt to a new set of rules.

“Private equity comes in and says, ‘We have to squeeze out every ounce of profit, and we have to grow, grow, grow,’” a former agent told the paper. “Well, that takes a lot of fun out of being an agent. It used to be this very artisanal and personal thing. Now it’s these monolithic entities.” The defection of 12 agents from CAA to United Talent Agency this spring was cited as one example of the changing agency landscape.

Some sources reportedly close to the matter told the Times agents that moved over to UTA didn’t appreciate the company’s culture under private equity ownership, while others contend the agents wanted a bigger piece of the pie than they were being offered. The culture switch could be attributed to the way private equity might view the agency biz. For years, the biggest assets in agencies were the agents themselves, but now the push may simply be to produce content, and lots of it.

Egon Durban, a managing partner for private equity firm Silver Lake Partners, which owns 51 percent of WME, told Times the firm’s focus lies in technology investments. “It’s less about investing in a talent agency per se and more of a macro thesis that content is king and WME represents a critical mass of the world’s most outstanding creative artists generating that content,” he said. Private equity isn’t a good fit for every agency.

ICM sold a controlling stake to Rizvi Traverse Management for more than $75 million in 2005. Six years later, agency execs bought out Rizvi and converted back to a partnership structure. ICM founding partner Chris Silbermann explained to the Times outside investment can create a lot of pressure for an agency and the pros and cons should be considered carefully.

“You have to find the right partner because, when you want to reinvest in the business, hire people, compensate people in a motivational manner and find other opportunities for expansion, you need to be aligned in those interests,” he said. “Otherwise, there is a conflict as you’re supporting disparate business and financial goals.”