TPG Capital, the private-equity firm run by David Bonderman and James Coulter, formed a joint venture with Evolution Media Capital LLC to invest at least $100 million in young media and entertainment companies as buyout firms broaden their deal making.
TPG will commit the money from its growth-equity business, which oversees $3.7 billion of assets, according to William McGlashan, the group’s managing partner. The venture, Evolution Media Growth Partners, has made three investments, taking stakes in online-gaming company Sleepy Giant Entertainment Inc., travel news provider Matador Network and Base79, the Peter Chernin- backed online-video network.
TPG and competitors such as Blackstone Group LP (BX:US) and Carlyle Group LP (CG:US) are seeking investments beyond traditional leveraged buyouts. LBO returns have fallen for Fort Worth, Texas-based TPG, which last year raised $2 billion for its latest growth- equity fund.
“We plan to invest capital in the kind of investments we wouldn’t do directly as TPG but are investments that through this platform will allow us to really add a unique value to these businesses,” McGlashan, a founder of TPG’s growth business, said in a telephone interview. The perspective the firm gets as an investor “is important for us strategically.”
TPG’s latest buyout fund, TPG Partners VI, produced a net internal rate of return of 2.5 percent as of June 30, according to the California Public Employees’ Retirement System, an investor in the 2008 pool. The fund’s predecessor, raised in 2006, was generating a negative 4.9 percent return rate, the Calpers data show.
Evolution Media Capital, which provides investment-banking services in media and sports, was formed in 2008 with backing from Creative Artists Agency, the Hollywood and sports talent company. TPG acquired a 35 percent stake in CAA in 2010.
The media and entertainment venture, known as EMGP, is in the late stages of five additional deals, according to McGlashan. TPG, whose investment committee approves the venture’s investments, would consider committing more than the initial $100 million if it sees additional opportunities.
“Our expectation is that we will make very attractive returns or we wouldn’t be doing this,” McGlashan said.
The venture combines TPG Growth’s investing prowess with “the deep media and sports relationships of EMC,” said Rick Hess, co-managing partner of Evolution Media Capital, which has offices in Los Angeles and New York.
TPG’s growth-equity business sold stakes last year including plastic-bag maker Hilex Poly Co., vitamin maker Schiff Nutritional Inc. and wedding-gown retailer David’s Bridal Inc. The deals netted TPG 2.8 times, 6.5 times and 2.2 times its cash investments, respectively, according to a person familiar with the deals, who requested anonymity because the details are private.
TPG, founded in 1992 as Texas Pacific Group, has participated in some of the industry’s biggest buyouts, including the record 2007 takeover of TXU Corp. for $43 billion. The firm, which in 2008 raised an $18.9 billion fund, oversees $54.5 billion of assets.
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