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Why CAA is Selling a 35% Stake to TPG

Hollywood sign
Mark Ralston | AFP | Getty Images
Hollywood sign

After a year of talks with various private equity investors and rumors that CAA was selling a stake to KKR, the Hollywood powerhouse agency has finally come to a deal that infuses hundreds of millions of dollars into the agency.

In addition to the cash infusion for the stake, the deal includes the establishment of a $500 million investment fund, to allow CAA (Creative Artists Agency) to make some acquisitions. As part of the deal CAA's partners all signed five year employment contracts, and TPG co-founder Jim Coulter will join CAA's board.

Why does CAA want the cash?

It'll help finance international expansion, as well as its sports business, which it started in 2006. Also, the talent agency business is changing and moving away from the traditional movie star deals that was the foundation of CAA's businessfor so many years. Movie stars don't get the same kind of percentages of movies' grosses that they used to, which means the 10 percent take agents get is that much smaller. Now CAA's business includes not just sports, but also major corporate clients like Coca Cola.

The landscape has changed: the second and third largest agencies—William Morris and Endeavor—merged in April of 2009, giving CAA a more formidable rival.

Another factor driving this deal — CAA partners get a hefty cash pay out. Selling a stake is the best way the founders could get some serious liquidity.

One note:TPG was part of the consortium that brought MGM private in 2004 for $4.7 billion. The deal turned out to be a total disaster — MGM couldn't find a buyer for more than $1.5 billion, and now is headed towards a restructuring. Needless to say, TPG was burnt once by Hollywood: this is an interesting way for TPG to make another entertainment industry play.

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