Springhill Merges with Fulwell 73, Gets $40M Growth Investment

RockWater Roundup

RockWater analysis to make you a better investor and operator. Today we discuss the merger of equals between Springhill and Fulwell 73, including the combination logic, deal structure, and implications for other creator x media businesses that need to improve defensibility and growth in a consolidating landscape.

 

————

Springhill and Fulwell 73 announced “merger of equals”.

Will get $40M investment to adapt to more competitive media market. 

Let’s break it down…

 

—TARGET 1: The SpringHill Company—

OVERVIEW

• Diversified entertainment and production company
• Focus on sports-related content, but does much more 
• Founded 2020 by LeBron James and Maverick Carter (CEO)
• Combines 3 co’s listed below

BIZ UNITS

• SpringHill Entertainment – prodco, founded 2007
• Uninterrupted – media and consumer products, founded 2015
• The Robot Company – brand consulting 

CONTENT HIGHLIGHTS

• Disney+’s The Crossover
• Space Jam: A New Legacy
• Netflix’s Rez Ball,The Playbook, Starting 5
• HBO’s The Shop (turned into multiplatform brand)

CAPITAL MARKETS HISTORY

• 2020 raised $100M for launch from Guggenheim, SC Holdings
• 2021 RedBird-led consortium bought undisclosed minority stake, valued co at $725M

STRATEGIC PARTNER HIGHLIGHTS

• 2022 partnership with IPG to activate diverse creators for brand campaigns
• 2023 spun off Hana Kuma, tennis star Naomi Osaka’s media co (incubated in 2022)

 

—TARGET 2: Fulwell 73—

OVERVIEW

• Production company
• Founded 2005, based in UK
• Founded by Ben Winston, James Corden, Leo Pearlman, Ben Turner, Gabe Turner
• Known for live events like Grammy’s, concert specials, Olympics
• Building film / TV studio in Sunderland, UK

CONTENT HIGHLIGHTS

• Hulu’s The Kardashians
• ESPN’s Clutch: The NBA Playoffs
• Camila Cabello feature film Cinderella
• HBO’s Friends: The Reunion
• BBC’s Gavin and Stacey
• CBS’s The Late Show with James Corden, incl Carpool Karaoke

CAPITAL MARKETS HISTORY

• 2018 raised £45M from Valence Media (parent co is Eldridge)
• NOTE: Eldrige remains sole outside investor

 

—DEAL DETAILS—

OVERVIEW

• Announced 11.18.24
• “Merger of equals”
• To close by year end
• No money changing hands
• Raised $40M from existing investors to drive growth

DEAL ORIGINS

• Both co’s talked about working together for years
• Formal merger convos started 10-12 months ago
• 1st broached in parking lot of LA Italian spot Antico Nuovo

INVESTORS

• Fenway Sport, RedBird, UC Investments, Nike, Epic Games, Main Street Advisors, Eldridge Industries

 

—DEAL VALUE PROP—

• Scale global entertainment co and diversify revenue
• Build clout with buyers and talent in challenged content market
• Be leader in unscripted and live entertainment in music, entertainment, sports
• Grow offerings in Film, TV, Docs, Live Events, Branded Content, Commercials, Consumer Products
• Position for growth as streamers / TV networks pair sports rights with companion content
• Help F73 build alt distro, branding, and DTC opps around shows VS just being prodco for hire (inspired by SH’s owning IP and going from streaming to YT to consumer products)
• Help Springhill expand in UK and Europe

 

—POST DEAL OPS—

• Springhill’s Carter and F73’s Pearlman to be joint CEOs
• Offices in LA, NYC, London, Sunderland (UK)
• Other F73 partners to remain in newco
• Newco brand pending

 

WHAT ELSE I FIND INTERESTING & DEAL INSIGHTS

The deal is described as a “merger of equals”. This is a type of M&A transaction where two companies of relatively similar size, value, and operational scale combine to form a new entity or integrate under one brand. This is more like a partnership, vs a takeover or acquisition.

This is a helpful and timely deal structure to understand in today’s creator x media landscape, where media markets are going through generational evolution. 

I’ll talk more about this deal structure at the bottom of this analysis. But first, let’s take a macro step back to explain the rationale for deals like this, and why our team believes we’ll see more similar deals across digital agencies and the creator economy…

 

Generational Evolution in Media Is Causing Industry Consolidation and New Capital Flows…

Consumer viewership and purchasing behaviors have shifted from linear to digital, and particularly to social media and creators. As a result, the business models have changed; consumer and brand marketer dollars are flowing through new channels, and investors focused on consumer / media / agency services are prioritizing new types of creator x media bets and advertiser offerings. 

Throughout this media evolution, and particularly through the weeding out of companies between 2022 to 2024 when capital markets were tight and there were headwinds in advertising, we saw a growing gap between high-performers and those who struggled.

Top-performers found a way to maintain growth, be profitable, generate cash, attract investment, or sell at a premium. The rest were forced to seek strategic options; either selling, going out of business, or becoming “zombie companies” who were constantly raising interim financing and/or cutting costs to incrementally move their business forward towards an unknown future. 

Aka the rich got richer, while the poor got poorer. 

Not an easy operating environment for many.

We predicted this here in 2023, and then went deeper on industry-specific M&A drivers and themes in our 2024 prediction pieces on creator x media and digital advertising. 

Further, our company blog goes into detail on many of the relevant M&A deals over the last couple years.

Ok, let’s now zoom in on the specific SpringHill / F73 deal rationale.

 

Diving Deeper into the Merger Deal Rationale for SpringHill / Fulwell 73…

The changing content-buying landscape

The content buying market has changed significantly over the past couple years. During the streaming wars and pre-2022 ZIRP environment, streamer and studio leadership focused on growth at all costs, and the industry collectively spent hundreds of billions on content production and acquisition.

Today, with higher capital costs and a focus on profitability, content spend has pulled back, and the focus is on bottom-line profitability and investor ROI. That means content developers / producers / sellers now face a more competitive market. To adapt, industry players are consolidating to expand their joint content offerings, improve clout with buyers, and improve margins through cost synergies. 

Specifically for SpringHill and Fullwell 73, combining means they now have offerings ranging from film, TV, and docs to live events, branded content, and consumer products. Thai broader content suite will be more attractive to content buyers, and also expand ways the newco can generate revenue from IP they own and audiences they build. 

Further, the newco can position itself to be a leader in unscripted and live entertainment across the verticals of music, entertainment, sports. I like these focus areas, and believe the company must narrow in on where it’s best advantaged within specific market growth lanes. Focus enables outperformance.

I think a particularly key growth lane is sports x live entertainment. 

From The Hollywood Reporter…

“Sports and live event-style programming are two big pieces of that puzzle. Both companies are in each space, with both docuseries and live shows. And both areas are poised for growth as streamers and TV networks look to pair their increasingly expensive sports rights with companion programming, and seek to develop live, must-see programming for viewers and subscribers.”

The newco can become a go-to solution for sports x live based on its expanded content offerings, unique access to talent (athletes, influencers, traditional celeb), creds in live entertainment and music, brand partnership smarts, and now global scale.

The New Biz Model for IP and Rights Holders

In further understanding the merits of the deal, I like the below quote from Ben Winston, the co-founder of Fulwell 73. 

From Variety…

“We looked at SpringHill and the impact they have in the branding world. We looked at their commercials agency. We looked at Robot. And we also looked at the shows that they’ve done, like ‘The Shop,” which is a show that starts on Max, and then moves to YouTube, where they control the rights,” Winston said. 

“They control the IP. There are brands involved in that show in a meaningful way, and now it has ended up in a load of products that you can buy in Walmart. If we’d had that mentality back in the ‘Carpool Karaoke’ days, it would have been a very, very different outlook for us.”

SpringHill has had some early wins in 360-izing IP across both traditional and digital platforms, and monetizing that IP beyond just content licensing and ad sales. The newco will benefit from applying this playbook to new IP they develop in-house, that can be supercharged through broad content capabilities and global reach. The result will enable access to bigger audiences, across more geos, and the chance to engage and delight them with novel content, product, and fan experiences.

 

Understanding a “Merger of Equals” and Why This Deal Structure Is Very Relevant for Media, Agencies, and Creator Economy…

This is a deal structure that our team expects to see more of going forward. As media goes through generational changes, which is leading to increasing M&A consolidation, creator x media companies with scale will have a meaningful competitive advantage.

Scale means expanded and better offerings for content, media, and talent buyers. These clients range from studios to streamers to brand marketers. They want access to novel IP, multi media content packages, premium talent, global reach, compelling brand partnership and integration ideas, robust performance data and audience insights, and more.

Scale also enables cost synergies, where combined companies can eliminate team and other OPEX redundancies, and / or be more productive with existing resources. This leads to higher margins and profitability, and reinvestment in growth (or just simply survival!). 

Smaller media, agency, and creator co’s will thus have a very hard time competing as the industry consolidates. So, I’m increasingly getting asked by founders of these smaller co’s, who want to make a strategic move, what they should do. Of note, these conversations are primarily with owners of digital agencies, influencer marketing platforms, digital production and media co’s, and talent representation businesses. 

I see 3 main strategic options for these smaller companies…

1. Those with some minimum scale, and strong financial and operational KPIs, are viable sales candidates and can explore a sell-side process in 2025. The timing is good as creator x media capital markets are showing signs of improvement (see overview of increasing deal flow here). Though there are fewer and fewer of these types of companies that remain – they’re getting consolidated very quickly (I wrote about this dynamic when I announced the sale of our client Long Haul to Wasserman). 
2. Similar to point #1 above, but with the difference that the owners see a chance to make a near-term strategic move, like a merger with a complementary business (e.g. like the Springhill / F73 deal), that will get a bigger exit and return on their equity in 2-3 years via the combined newco vs selling standalone in today’s market. A riskier move, since there’s always more certainty about today vs tomorrow (and executing mergers can be tricky). But when it works, the payoff can be big. 
3. For smaller co’s that aren’t yet attractive to buyers, they’re stuck between a rock and a hard place. They may soon find themselves in the zombie death march I previously described, with real risk of founder burnout leading to closing shop or a non-premium event like an acquihire. But…combining with 1 or 2 industry peers could be a way to reinvigorate these smaller companies (and leadership), and actually make them an attractive acquisition candidate in the medium term once some key growth goals ar e achieved. Of course, easier said than done. 

For points 2 and 3 above, this is where a “merger of equals” structure could be applicable. Below are the key deal characteristics to be aware of.

Of note, I’m running out of time to get this newsletter out the door, so I used ChatGPT to structure my thoughts (I personally write all these newsletters, and sometimes have guest features from our team). 

Anyway, the end result is pretty good!

—

A merger of equals is a type of merger and acquisition (M&A) transaction in which two companies of relatively similar size, market value, and operational scale combine to form a new entity or integrate under one brand. The term signifies a partnership-like arrangement rather than a takeover or acquisition.

Key Characteristics of a Merger of Equals:

1. Similar Size and Valuation:
   • The companies involved typically have comparable financial metrics, such as revenue, market capitalization, or assets.
2. Shared Control:
   • Both companies often contribute executives to the leadership team of the combined entity, with board seats and leadership roles shared between the merging firms.
3. Stock-for-Stock Transactions:
   • These deals are frequently structured as stock swaps, with shareholders of each company receiving shares in the newly combined entity based on a predetermined exchange ratio.
4. Branding and Identity:
   • The combined entity may retain elements of both companies’ branding, adopt a new name, or choose one company’s name to dominate while maintaining equal governance representation.
5. Strategic Synergy:
   • The merger aims to leverage complementary strengths, reduce operational redundancies, and improve competitive positioning without dominance by one party.

Benefits:

• Balanced Leadership: Minimizes concerns of a “winner” and “loser” dynamic.
• Synergies: Combines resources for efficiency and growth opportunities.
• Cultural Alignment: Focuses on integrating two organizations equitably, reducing cultural clashes.
• Perception: Viewed as a collaborative partnership, which can positively affect employee morale and public relations.

Challenges:

• Governance Conflicts: Balancing power can lead to disagreements in decision-making.
• Integration Complexity: Equal treatment of processes, brands, and teams may delay integration.
• Market Skepticism: Investors may doubt whether the companies are truly equals or whether one is effectively acquiring the other.

While a merger of equals is conceptually appealing, the successful execution depends on careful planning and equitable governance.

—

…not bad ChatGPT!

Overall, I expect to see more “merger of equals” or similar merger deal structures going forward for all the reasons I outlined above. The SpringHill / Fulwell 73 announcement was thus a great time to expand on this unique type of M&A a bit more. But the devil is in the details. As I’ve said many times before, deals and M&A are always exciting for investors, executives, and owners to talk about and explore. But successful deal outcomes are not guaranteed, and require lots of work and careful planning to ensure a good result for all involved parties. 

I’d posit that a merger of equals, which I do believe make increasingly more sense for certain players in today’s creator x media market, is actually a bit tougher to pull off and carries even more execution risk. This speaks to having good advisors in your corner to help you explore and navigate such a deal. Key points include:

• Understanding if a merger is the best strategic option vs exploring an outright sale
• Thinking through which types of companies are best to combine with based on what will drive the best future financial and client performance, and make you attractive to future buyers
• How to avoid pitfalls and reinforce strengths when combining two leadership and operating teams with different biz and exit goals, work cultures, service offerings, and client networks
• Is the deal a true merger of equals aka 50/50, or should pro forma ownership % be split differently based on financial and operational contributions
• Will growth capital be required to setup the newco for success?
• More…

Alright, that’s enough deal analysis for one week. 

Heads up there won’t be a normal M&A newsletter next week due to the Thanksgiving holiday.

I’m the founder of RockWater Industries. We do financial and strategy advisory for media, agencies, and creator economy. From M&A and fundraising to consumer research and go-to-market planning.

DM me on LinkedIn or email me chris @ wearerockwater dot com