By Asian Venture Capital Journal
Bruno Mars, Katy Perry, and Eminem have all headlined shows in Asia produced by TEG over the past five years. They don’t come cheap. Another star wouldn’t set foot in Australia to begin an 11-leg tour without a guaranteed minimum payout of $60 million. Affinity Equity Partners, owner of TEG between 2015 and 2019, was willing and able to underwrite this kind of risk.
“The old TEG would never have done that. If money had to be put in upfront, it wasn’t more than $2-3 million,” says K.Y. Tang, founding chairman and managing partner of Affinity Equity Partners. “Under private equity ownership, they had the ability to go bigger. This is because we put in place the underwriting procedures, risk management, and technology. The management team was good and really knew the business, but they benefited from having a PE firm with deep pockets and financial discipline.”
The transformation of TEG from a business that primarily handles event ticketing into one that gets most of its revenue from putting on those events was key to Affinity’s value creation efforts. It also expanded the company’s geographic remit, moving from Australia and New Zealand into Asia and ultimately the UK. On its sale to SilverLake for A$1.3 billion ($880 million) in late 2019, TEG was the largest live events operator in Asia Pacific and third-biggest globally. Affinity secured a 2.7x return.
The private equity firm acquired TEG for A$640 million with debt covering about half of the purchase price. It was one of several assets divested by Nine Entertainment, an Australian broadcaster and publisher that came under the control of creditors – led by Apollo Global Management and Oaktree Capital – in 2013 through a debt-for-equity swap. Nine was recapitalized and relisted, with TEG sold as part of efforts to simplify the business at a time when free-to-air television was challenged.
“They weren’t engaging in the market and looking to sell it. We saw some investment themes we liked: around experiences, and millennials especially; and around data, specifically data as an enabler of growth in the business,” says a senior Affinity investment professional in Australia who was involved in the deal. “They had thought about live events, but they didn’t have the mandate or capital to pursue it. It’s a classic situation where private equity can really make a difference.”
Information equals value
In 2015, ticketing brand Ticketek accounted for 70% of TEG’s revenue. This was a highly stable, cash-generative operation. Ticketek enjoyed a 70% market share, processing over 23 million tickets across 22,000 events annually. It had exclusive contracts with over 100 venues, including nine of the 10 largest venues in Australia, and boasted proprietary software considered among the best of its kind globally.
TEG also had data. Approximately 14 million people in Australia and New Zealand – roughly half the combined population of the two countries – have used Ticketek, giving the company a treasure trove of information on consumer preferences and purchasing intent. Affinity was already realizing the value of data in another Australian portfolio company, airline frequent flyer business Velocity, by selling corporate clients access to its customer base. It made sense to do the same with TEG.
“The applicability of data to enabling and facilitating the core growth of a business and generating ancillary revenue streams is still an investment thematic that we consider and explore in Australia across a range of industries,” the investment professional explains. “TEG’s previous owners were not doing anything to monetize that data. Our experience at Velocity gave us a different lens on TEG. Others had looked at the business from time to time, but we saw another opportunity around data.”
A digital and data division was built from the ground up. While there were obvious gains in bringing digital solutions to the ticketing business – making marketing campaigns more targeted and effective – data became a standalone revenue generator. Within 15 months of its establishment, the division had delivered over 200 campaigns to corporate clients like Telstra and Nissan. These campaigns were informed by an online research service that leverages a research panel of over one million people.
By the time of exit, the EBITDA contribution of the data business had risen from zero to 5%. This share, though relatively small, has risen quickly and continued robust growth is expected. The client base comprises more than 1,300 companies.
A head of data analytics and a CTO were two of six senior management appointments made by Affinity. Four were newly created roles, intended not only to enable TEG to function as an independent entity, but to support expansion into new areas. With any corporate carve-out, the immediate post-acquisition priorities involve completing the structural separation from the parent. But Affinity also recognized that it must move swiftly on the pivot to live events if the transformation was to be achieved within five years.
The proprietary nature of the transaction was helpful in this respect because it meant the firm could spend time with TEG’s management team and develop the post-investment thesis. On closing the deal, the transformation had undergone full due diligence and been validated. Affinity recognized that M&A would feature prominently in this process and some potential targets had been identified.
“The ticketing business was mature, but the volume was growing only 1-2% a year. You can’t get a 20% IRR out of a business growing at 2%, so we were always going to do something else,” says Tang. “We started off with domestic M&A, acquiring companies that had content. Content is king and content that you own is more valuable than content you purchase from elsewhere. We bought four domestic companies, including the biggest concert promoter in Australia. That worked out well.”
The concert promoter in question was Dainty Group, which had built up a strong track record over 40 years by bringing acts like The Rolling Stones, Bon Jovi, and Michael Bublé to Australia. This was where the financial heft of Affinity-backed TEG came in. Founder Paul Dainty remains with the business as head of TEG’s live events division, but he has more firepower.
“Bringing him on board was a major coup. It enabled us to expand the content side of the business and pursue more live acts,” says the investment professional. “At the same time, we could let Paul off the leash. Previously, he was operating his own business, putting his own capital at risk. If there were two acts, he might only be able to go after one of them or not go after the larger one. With TEG, and with the methodology we put in place, it was transformative.”
Dainty was one of three acquisitions completed in the first 15 months of Affinity’s ownership. The others were Life Like Touring, a leading producer and promoter of children’s live entertainment that works with the likes of Disney Nickelodeon and Warner Brothers, and Brickman Exhibitions, an organizer of interactive build experiences popular among Lego fans.
TEG’s ability to offer sought-after live content brought significant synergies with the ticketing business. It strengthened the company’s negotiating position with venues, leading to a 98% renewal rate for ticketing over the past four years, despite a highly competitive market.
The developmental model TEG followed was based on Live Nation Entertainment, which was formed through the merger of Live Nation and Ticketmaster in 2010. The US-listed company produced more than 40,000 events featuring 5,000 artists in 2019, attracting nearly 98 million customers. There is also an artist management arm that works with over 500 performers. On the ticketing side, it sold 485 million tickets in 2019, serving 11,500 venues, concert promoters, sport franchises, theaters, and museums.
Live Nation Entertainment reported $11.5 billion in revenue for the year, of which 81.6% came from producing and promoting concerts, 13.4% from ticketing, and 5.1% from sponsorship and advertising. The company doesn’t breakdown revenue by geography, but it is known to be much stronger in North America and Europe than in Asia. This informed TEG’s cross-border expansion strategy – something that was always on the agenda for Affinity, given its pan-Asian remit.
Once the business had achieved diversification through M&A in Australia and New Zealand, targets in Southeast Asia were considered. In 2017, TEG bought TicketCharge, Malaysia’s leading ticketing company, and followed up a year later with TicketWorld, one of three major players in the Philippines offering similar services. The company also established a base of operations in Singapore to serve as a platform for greenfield expansion in the region.
“Singapore wants to attract more international shows; Hong Kong and Macau want to do the same,” Tang explains. “Singapore and Macau recognize they can’t just rely on gambling. They need shows and other family-oriented activities.”
Bolt-on acquisitions in Southeast Asia are not straightforward. Markets differ in terms of how the economics are divided up between venues, artists and promoters, which impacts risk-sharing. Moreover, by targeting areas in which Live Nation wasn’t strong, TEG was entering unchartered territory for global players. It ended up avoiding China, despite its size and attractiveness, due to local complexities. Affinity prioritized markets that could generate the best return during its investment timeframe.
TEG’s M&A activity took a step up in 2019 with the purchase of MJR Group, a UK-based promoter that runs over 2,000 shows a year and owns and operates four venues. This put the company on the global stage – the US wasn’t seen as a realistic near-term target – and positioned it favorably ahead of the exit.
“Even though the acquisition happened not long before the exit, it had a significant impact on the exit. The buyer was a global fund, based out of the US, but with a team in the UK and investments in the UK,” says the investment professional. “Interest would have been limited if TEG were just an Australian or an Asian business. We had a growth pathway into global markets and so the universe of applicable buyers was larger.”
A buyer was unlikely to come from within live entertainment because the top three – Live Nation, Anschutz Entertainment Group, and TEG – are so large there would have been antitrust concerns. As such, strategic interest was limited to groups from neighboring verticals, chiefly those that were interested in TEG’s database or wanted to leverage the asset to enhance their own customer offerings.
Ultimately, there was little surprise when another private equity firm came in for TEG. It represented Silver Lake’s first large-cap buyout in Asia, but the firm was staying in familiar territory: the technology focused-GP owns several US-headquartered media, entertainment and sports businesses, including Endeavor, the parent company of UFC and Miss Universe, among others.
The live events business globally has experienced headwinds because of social distancing measures imposed in the wake of COVID-19. But the numbers from Affinity’s holding period speak for themselves: a 125% increase in revenue – with improvements of 571% and 89% for the digital and data and international segments, respectively and a 52% gain in EBITDA; and 14% growth in ticket volumes, with a 17% increase in average revenue per ticket.
For Affinity, statistics tell only part of the story. The key challenge was running multiple operational initiatives simultaneously: building out the live events business and the data and analytics business, while supporting growth on the ticketing side; enabling organic growth while pursuing M&A opportunities, in domestic as well as international markets.
“Ticketing sounds simple; so does live entertainment,” the investment professional adds. “However, there were a lot of moving parts and we were growing all of them. Execution within the timeframe was hard.”