Secular trends drive PSP’s entertainment investment debut

The Canadian pension has teamed up with Investcorp to invest in UTA in a deal valuing the talent agency at up to $800m.

Canada’s Public Sector Pension Investment Board has teamed up with Investcorp to acquire a minority stake in talent and entertainment company United Talent Agency, the pension fund’s first direct investment in the media and entertainment space.

UTA is one of three major talent agencies in the US, alongside WME-IMG – whose investors include Silver Lake, SoftBank, Canada Pension Plan Investment Board and Government of Singapore Investment Corporation – and CAA, which is majority owned by TPG Capital.

It is understood the transaction values UTA, which employs more than 900 people, at between $700 million and $800 million. As well as acquiring a minority stake, Investcorp and PSP are injecting additional capital into the business to potentially fund new acquisitions.

UTA’s founders will continue to own the majority of the business.

“They were really looking for long-term and strategic partners to help them accelerate their growth,” Simon Marc, managing director and head of private equity at PSP Investments told Private Equity International. “This is mostly a primary investment for them to raise capital and be able to [take] opportunities to diversify and further consolidate the industry.”

Marc pointed to secular trends in the entertainment industry as a driving thesis for the investment.

“The industry is going through a lot of change and meaningful transformation, driven by technology, driven by the emergence of new players,” he said. “You see the likes of Amazon and Netflix investing several billions every year in original content, so the need for content is accelerating and greater than ever. The value of content is exploding as well.”

Industry consolidation is also a major driver. Over the past year, UTA has made acquisitions in the live speaking, electronic music, and e-sports and gaming businesses, and has taken an equity stake in the recently-renamed Industrial Media, which last year relaunched American Idol.

PSP, which has C$153 billion ($117 billion; €101 billion) in assets, has been making direct and co-investments for the last 10 years. The programme has gained momentum over the last three years, Marc said. During that period PSP’s private equity programme has deployed between C$4 billion and C$5 billion per year, half of which has been in directs and co-investments.

The direct programme invests across a diverse range of sectors and geographies. Around half of its investments are in North America, a third in Europe and the remainder in developed Asia.

Marc echoed market views that pricing in North America is “very high”, and so in the last 12-18 months PSP has “raised the bar further in terms of investments we look at”.

“We are looking for sectors where the cyclical exposure is lower,” he said. “We’re looking for areas where we can find new secular growth trends, and I think UTA is a good example of that.”

PSP is looking either for transactions which can be structured defensively – the fund has made several preferred equity or structured investments – or for companies where “there’s more than one way to make money”.

“We’re looking at situations where there are multiple value creation levers and where we can grow the business through acquisitions, through organic growth, through margin improvements and so on.”

PSP previously teamed up with Investcorp to invest in management consulting firm AlixPartners in 2016 in a deal valuing the business at more than $2.5 billion.

“We don’t seek to compete head to head with our GPs, but in situations like AlixPartners or UTA where we have entrepreneurs that really seek that type of [long-term] capital, we find it attractive for us and a differentiated way to use our balance sheet.”

Recent co-investments include investing alongside BC Partners in technical ceramics maker CeramTec and alongside Silver Lake in online property portal Zoopla.

PSP’s fund investment programme has also been redeveloped over the last three years to provide scalability and strong partners that can provide co-investment opportunities and diversification, Marc said. In the fiscal year to 31 March the programme committed C$4.1 billion for future deployment through 17 funds, 11 of which are new fund partners.

PSP’s private equity programme reached C$19.4 billion in net AUM at 31 March, up 22 percent from the previous year, and represents 12.7 percent of total assets. It posted a one-year rate of return of 12.9 percent and a five-year annualised return of 7.9 percent, according to its most recent annual report.

In July PSP named Eduard van Gelderen as its senior vice-president and chief investment officer. He takes the helm of PSP’s total fund strategy group, managing investment strategies, allocations and exposures to different asset classes, geographies and sectors.