Merger deal reached for parent of IMG Academy in Bradenton

New York TimesDecember 18, 2013 

The boys and girls 18s division trophies await presentation Sunday at the Eddie Herr International Junior Championships at IMG Academy. TIMOTHY R. WOLFRUM/Bradenton Herald

Over the past two decades, Ari Emanuel has climbed -- brashly, ruthlessly -- into Hollywood's power center with one position in mind: king.

With a nighttime raid on his own office files at International Creative Management in 1995, Mr. Emanuel and three colleagues started a talent agency called Endeavor. He engineered a striking takeover in 2009 of the old-line William Morris Agency. And on Tuesday, in a dramatic third act, his current company, William Morris Endeavor, won a bidding war for the huge sports and media talent agency IMG.

Mission accomplished -- assuming he and his co-chief executive, Patrick Whitesell, can hold it all together.

William Morris Endeavor, working with its private equity partner, Silver Lake Partners, beat out two other groups with an offer of about $2.3 billion for IMG, according to people with direct knowledge of the matter, who spoke on the condition of anonymity because the companies intend to announce the acquisition on Wednesday.

IMG is the parent of the IMG Academy sports training facility in Bradenton.

A combined IMG and William Morris Endeavor would significantly alter the balance of power in Hollywood's business landscape, creating a mega-agency that would leap ahead of its primary rival, Creative Artists Agency. At the same time, the acquisition, with its accompanying thrust into sports events and interests like media and fashion, moves William Morris Endeavor's center of gravity away from the increasingly troubled businesses of movies and television, where growth potential is limited.

The losing bidders were the former News Corporation executive Peter Chernin, who was working with CVC Capital, and the talent agency ICM, working with the Carlyle Group. Both of those groups are believed to have offered less than $2 billion.

All the parties declined to comment.

For decades, Hollywood agencies have fought to escape the gilded cage of film and television representation, which places them in the middle of a glamour business but leaves them with few hard assets on which to build business empires.

But the need to transcend entertainment has become more acute since the middle of the last decade, when plummeting DVD revenues turned the film industry, formerly a growth business, into a flat or declining enterprise. At roughly the same time, DVRs started to sharply erode TV ratings. Studios and networks coped in part by cutting star salaries, in turn hobbling the agencies.

Hollywood agents have seen a solution in the more predictable world of sports. Athletes command contracts worth hundreds of millions of dollars, but the real money lies in negotiating endorsement, licensing and media-rights deals. Creative Artists Agency started from scratch just a few years ago and now has nearly 1,500 employees and represents more than 800 athletes, including Buster Posey of the San Francisco Giants and Carmelo Anthony of the New York Knicks. It also does sports consulting and sells naming rights and global media rights for sporting events.

William Morris Endeavor until now has not had a sports business, relying instead on diversification efforts involving advertising agencies and digital media. Its operations are clustered in Los Angeles, New York and London. Its television clients include Steven Spielberg, Seth MacFarlane and Aaron Sorkin; movie star clients include Ben Affleck, Mark Wahlberg and Denzel Washington. It has about 1,000 employees.

IMG is vastly bigger, with 3,500 employees and offices in more than 30 countries. It has the leading college sports marketing business in the United States, handling lucrative organizations including the National Collegiate Athletic Association, as well as individual universities and athletic conferences and major events like the Rose Bowl. Leading professional sports clients include the quarterbacks Peyton and Eli Manning. IMG is also a leader in golf and tennis.

Its musical clients include pop stars such as Justin Timberlake and Taylor Swift. IMG also operates a large fashion show and modeling division. But most of its money comes from licensing and media rights deals.

With the purchase, it now falls to Mr. Emanuel, 52, and Mr. Whitesell, 48, to show that their own talents extend beyond hard bargaining to the leadership and organizational skills required by a vastly larger company. Both IMG and William Morris Endeavor overflow with outsize personalities -- although none perhaps larger than Mr. Emanuel, whose antics were parodied by the thinly veiled character Ari Gold in the HBO comedy "Entourage."

Mr. Emanuel's brother Rahm is the mayor of Chicago; another brother, Ezekiel, is a renowned bioethicist. In Hollywood, where the sunset of colorful moguls like Michael Ovitz and David Geffen is often bemoaned, Mr. Emanuel's ascendance has been marked by both fear and amusement: He may have a chainsaw mouth that cuts people down to size, but at least he keeps things interesting.

(In one prominent spat in 2009, for instance, Mr. Emanuel threatened the co-chairman of NBC Entertainment with ruin after financial negotiations over the drama "Medium" broke down; an Emanuel colleague later insisted the threats were not personal.)

Mr. Emanuel and Mr. Whitesell have experience in melding conflicting corporate cultures. William Morris Endeavor is just emerging from a period of restructuring that followed its formation in the merger between Endeavor, which had been the smaller company, and William Morris.

Theodore Forstmann, the chief of IMG, built it into a major sports and marketing power. His death led to the agency's sale.

This spring, Evercore Partners and Morgan Stanley were hired to sell IMG. The process initially drew in buyout firms including Bain Capital, Blackstone and Kohlberg Kravis Roberts, as well as sovereign wealth funds and even advertising groups. Buyers were emboldened by the attractive debt markets, and enticed by the prospect of owning a trophy asset.

At one point Creative Artists Agency considered a bid with its own private equity backer, TPG. But it backed away in part because IMG would have upset the balance of its partnership structure, according to people briefed on the matter.

reative Artists and other buyers also balked at Forstmann Little's eye-popping price expectations, believing that, despite the big names on the company's roster, taking costs out of the business while maintaining profitability would make IMG a very difficult asset to own.

Mr. Emanuel was prepared to pay more than others, people familiar with the process said, in part because he believes he can find cost savings from combining IMG with William Morris Endeavor.

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