Gersh and A3 Artists in Deal Talks + Electrify Raises $85M for YouTube Rollup
RockWater Roundup
RockWater analysis to make you a better investor and operator. Today we discuss Gersh’s reumored deal talks to acquire A3 Artists, and Electrify’s $85 million raise to continue rolling up YouTube channels.
Gersh and A3 Artists in Deal Talks
by Chris Erwin
Gersh rumored to be in talks to acquire A3 Artists.
The writers strike might be a major talent M&A catalyst.
First, some context…
The deal is focused on A3’s unscripted and digital departments.
Would be 1st M&A move since Gersh sold 45% to large PE fund Crestview Partners back in May.
Of note, 5 yrs ago Abrams Artists was sold and rebranded to A3.
Reasons for deal?
Gersh doesn’t have a large digital dept, and digital is supposedly Abram’s largest dept.
Stepping back, let’s recap the recent drivers of talent rep M&A and consolidation…
- Macro tailwinds for digital media and influencers. Viewership and ad spend way up!
- Wave of high-growth talent-led entrepreneurship, from CPG to media
- Scale enables more talent collabs across wide variety of client projects, improves project marketability and likelihood of success
- Scale also allows sharing of deal opportunities across broader talent base, helps company be one-stop-ship for partner needs
These dynamics have excited PE investors, who are increasingly buying stakes in talent firms, and infusing them with growth capital.
See newer deals like Providence-backed Wasserman, and EQT-backed UTA.
And that capital needs to be spent on rapid growth to achieve PE’s desired returns, and M&A is part of that strategy!
And there’s something else I wasn’t thinking about…
The WGA strikes coming to an end.
Last time writers strike ended after 2007-2008, Endeavor acquired WMA. Reason was because talent and media businesses had taken a hit during Hollywood shutdown, so companies realized need to be more resilient.
Resilience comes from scale and diverse capabilities.
Means that with the ending of the recent writers strike just this past week, we might have the perfect storm for rapid industry consolidation…
- Strong market tailwinds
- PE capital infusion
- Post-strike desire for resiliency
The talent M&A hits keep on coming. We at RockWater will help you keep up 😉
Electrify Raises $85M for YouTube Rollup
by Chris Erwin
Electrify, the video rollup platform, just raised $85 million.
I explain their biz model and traction, and key insights I have…
ORIGIN STORY
▶️ Founded May ‘21
▶️ 3 cofounders
▶️ 1 traditional media alum, brand licensing entrepreneur
▶️ 2 experienced finance, PE pros
▶️ Started with cofounder seed capital to start
** I like how they started with small amount of own capital. Allowed them to prove out thesis, get initial traction. This gave them more leverage with future investors: had better story to tell, could negotiate better terms.
BIZ MODEL
▶️ Invest cash and resources into YouTube channels
▶️ Buy min 51% stake incl profit share, or 100% buyout
▶️ Focus on long-form, factual, brand-safe content
▶️ Kids, science genres
** Min 51% ensures they can control investment, operate against their thesis, and apply value-add services from parent co. Can also recognize revenue. Ensures better exit potential, since acquirers prefer majority control stakes.
I also like the kids and science focus, ability to monetize kids kits, toys, and demand for more premium content.
PROGRESS
▶️ 5 investments to date
▶️ 30 million subs, 10 billion views
▶️ $85M raised Sep ‘23, led by Capital D
▶️ $50M raised Feb ‘23, led by MEP Capital
** Ability to raise large capital facility against broad M&A mandate signals they’re likely executing well. Otherwise, investors may want to see negotiated LOI for each new deal before committing financing. Likely what they had to do in early days.
I’m curious about exit strategy. If can get profitable, can sell to strategic media co, or even PE backer. Capital raise implies valuation in $250-350M range, if giving up 25-35% equity. Assuming continued growth, could get to $500M+.
Of note, there’s many more buyers at that range VS Candle Media, which seems it needs a multi-billion valuation for positive investor ROI. If stable and growing profits, could IPO, but unlikely in near term and doesn’t seem public markets would give them enough premium for investor ROI hurdle.
And then the likely strategic buyers, the streamers and film / TV studios, definitely aren’t buying anything of scale in the near term. Their pay TV businesses are in massive decline and their streamer biz models are upside down.
I want to see Candle win, but these are real hurdles…any buyer groups I’m missing?
Also, what is leverage ratio at Electrify? Cash-flowing assets means Electrify can add leverage turns to get growth capital and minimize equity dilution. I’m hearing 3-5x EBITDA ratios in market…
Final note…I’m a big fan of the Electrify team, got to know the CEO Ian Shepherd at Vidcon this past summer. Definitely rooting for them!
If these insights are relevant to projects you’re working on, ping us here. We love talking all things media x commerce!
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