ONLINE WITH THE SHOW

In these digital days, the entertainment industry's dilemma is not a lack of content, but a need for effective distribution channels. The cheap delivery of movies, music and other content via the Internet or a cable box can be, in theory, highly lucrative.

The digital distribution play used to be pursued solely by venture firms, but now concrete business opportunities are real enough and large enough that major buyout firms have gotten involved.

Last month Sony Corporation of America, alongside private equity firms Providence Equity Partners, Texas Pacific Group and DLJ Merchant Banking Partners, agreed to acquire publicly traded movie studio Metro- Goldwyn-Mayer in a deal that values the Hollywood veteran at nearly $3 billion (€2.4 billion). The deal's lynchpin was a plan whereby cable company Comcast will create several new “pay-per-view” cable channels to broadcast the enormous library of both Sony and MGM movies.

Similarly, many market observers see Thomas H. Lee Partners' and Bain Capital's backing of the $2.6 billion Warner Music Group buyout as a bet that the company's vast music library will increasingly be mined through online purchases, now that file-swapping appears to be on the retreat.

Other private equity firms are pursuing a strategy of acquiring pure intellectual property. Chicago's GTCR Golder Rauner has teamed with music producer Charles Koppelman to this end. Elevation Partners, the new private equity firm led by former Silver Lake star Roger McNamee and including U2 singer Bono, was formed specifically to sniff out entertainment assets in need of better delivery.

As has already been demonstrated, investments in digital distribution can be lucrative. Last week, for example, web portal Yahoo! agreed to acquire online “jukebox” MusicMatch in a deal worth approximately $160 million. The San Diego-based company raised around $33 million in total venture capital funding since its 1997 inception from investors that included Redpoint Ventures and Intel Capital. These firms built it, the listeners came, and eventually so did a profitable exit.

CYPRESS, GOLDMAN IN $1.17BN AUTO BUYOUT
New York private equity firms The Cypress Group and Goldman Sachs Capital Partners teamed to acquire a fluid, sealant and vibration control division of publicly traded Cooper Tire & Rubber. Management and employees of the Novi, Michigan company will also participate in the proposed buyout. David Spalding, the vice chairman of Cypress Group, and Terry O'Toole, managing director of Goldman Sachs Capital Partners, led the deal for their respective firms. The deal also marks Cypress Group's second major purchase in the automotive space in as many months. In July, the firm announced an agreement to acquire the automotive aftermarket group of Dana Corporation in a $1.1 billion deal, renaming the company AFFINIA.

TH LEE, FREEMAN SPOGLI IN WARRANTY DEAL
The two private equity firms acquired a significant equity interest in NEW Customer Services Companies, an independent administrator of warranty and extendedservice contracts for retailers, utilities, manufacturers and financial services firms. The deal gives the Virginia company an enterprise value of approximately $370 million (€311 million). Renny Smith and Sasha Grubman, managing director and principal, respectively, at ([A-z]+)-based TH Lee Putnam Ventures, and John Roth, partner with Los ([A-z]+)-based Freeman Spogli, led the deal.

BAIN TO BUY CANADA'S SUPERPAGES
The Boston-headquartered buyout firm has agreed to purchase the Canadian directory operations of Verizon Communications for $1.54 billion (€1.27 billion). The acquisition of SuperPages Canada, the country's second-largest directories publisher with revenues of US$293 million, will be the second major yellow pages private equity deal in Canada in as many years. In late 2002, Kohlberg Kravis Roberts and the private equity arm of the Ontario Teacher's Merchant Bank acquired 90 percent of Yellow Pages Group for C$3 billion (US$2.3 billion) from Bell Canada. The SuperPages deal also mark's Bain Capital's second major directories play. In 1997, the firm acquired a stake in Seat Pagine Gialle, an Italian yellow pages business, in a €2 billion deal that included Banca Commerciale Italiani, Investitori Associati, BC Partners and CVC Partners. Bain Capital sold its stake for a reportedly very significant gain in 2000 to Telecom Italia.

SWANDER PACE EXITS TOTES-ISOTONER
The San Francisco consumer goods investor sold the umbrella and glovemaker Totes-Isotoner to New York buyout firm Bruckmann, Rosser Sherrill & Co. Although terms of the deal were not disclosed, the deal reportedly is worth between $100 million and $125 million (€82 million and €103 million). Totes- Isotoner, based in Cincinnati, was created by former owner Bain Capital in 1997, though the merger of the Totes brand, which sells rain products such as umbrellas, galoshes and raincoats; and the Isotoner brand, which sells cold weather products such as hats, gloves and scarves. Swander Pace purchased Totes-Isotoner in March 2001.

SHAMROCK TO BUY GUAM TELEPHONE AUTHORITY
Burbank, California-based Shamrock Holdings, the private investment company of the Roy E. Disney family, agreed to acquire the government-owned local exchange carrier for $150 million (€122 million). The deal includes $140 million to be paid in cash, and a $10 million promissory note payable in eight years. GTA will become part of Teleguam Holdings, which itself is an indirect portfolio company of the Shamrock Capital Growth Fund. GTA, the last nationalized telephone service provider in the US. The transaction is the culmination of a multi-year privatisation effort by the government of Guam, and will allow GTA to offer new services currently prohibited because of its government status.

FIRST RESERVE ACQUIRES ENERGY UNIT
The Greenwich, Connecticut-based private equity energy specialist has agreed to purchase Dresser-Rand from parent company Ingersoll Rand for $1.2 billion (€990 million). New ([A-z]+)-based Dresser-Rand builds infrastructure equipment for the oil and natural gas industries including turbines and compressors and reported revenues of $1.3 billion last year. The transaction is the latest in a series for First Reserve, which has spent over $2 billion in three transactions this year. In May, the firm was part of a consortium including The Blackstone Group that agreed to buy RAG American Coal Holding from Germany's RAG Coal International for approximately $1 billion (€840 million). The firm also bought a small well-testing operation from Halliburton for $129 million (€108 million).

ARSENAL ACQUIRES PHARMA DISTRIBUTOR
The New York middle-market firm has acquired Priority Air Express from Berwind Financial for $75 million (€63 million), its third investment since closing a debut fund last June. The Philadelphia company is a specialty distributor for pharmaceutical and healthcare manufacturers, including the transportation of pharmaceutical samples and promotional materials. Arsenal Capital Partners managing director Jim Marden led the deal. The Priority Air purchase is part of the firm's strategy of investing in niche companies in outsourced segments of healthcare. The firm in February bought Scientific Protein Laboratories, a pharmaceutical ingredient maker, from global pharmaceutical giant Wyeth in a deal worth $81 million.