Providence Equity Partner Inc.’s stake in last week’s $2.6 billion
cash buyout of the music division of Time Warner Inc. appears to mark the private
equity firm’s first foray into the music industry.
The Providence-based company, which invests in media and telecommunications
companies, joined three other investors in the deal: Boston-based firms Thomas
H. Lee Partners and Bain Capital LLC, and Edgar Bronfman Jr., former vice chairman
of the board at Vivendi Universal. The buyout was announced Nov. 24.
Providence Equity, whose headquarters is at 50 Kennedy Plaza, reportedly chipped
in $150 million for Warner Music, the smallest amount of the four investors,
according to The Boston Globe. A spokeswoman for Providence Equity declined
to comment on the deal.
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The acquisition, expected to close in January, would add to Providence Equity’s
$5 billion portfolio of investments in 70 media and telecommunications companies.
Among its most notable holdings are T-Mobile USA, AT&T Canada and Germany’s
Kabel Deutschland, Europe’s largest cable company.
But Warner Music likely is the reclusive firm’s first substantial investment
in the turbulent music-publishing industry, and appears to be its first shot
at the content side of the media business.
“It is unusual for them because it’s entertainment content,” said David Carey,
a senior writer who covers private equity for the Daily Deal, a New York-based
daily newspaper focused on mergers and acquisitions and other corporate transactions.
“I don’t think any of these guys (including Bain and Lee) have much experience
in entertainment content,” Carey said. “They’re mostly invested in the distribution
side of media and telecommunications, so I think this is untested territory
for all of them.”
Indeed, a list of 17 communications sectors, posted on Providence Equity’s
Web site, does not include music publishing or recording as industries in which
the firm now holds stakes.
Most of Providence Equity’s recent investments have been in telecommunications
companies. In March, it led a consortium of investors that acquired Kabel Deutschland
from Deutsche Telekom for more than $2 billion. In February, the firm led a
$525 million buyout of Comcast Corp.’s cable business in four Rocky Mountain
states.
Providence Equity’s recent media investments largely have been in broadcasting.
In March, it spent $110 million for an 18 percent share of Craig Media Inc.,
the largest privately held TV broadcasting company in Canada. In 2002, the firm
co-founded the YES Network, which broadcasts New York Yankees games.
The music-publishing and recording industry is scrambling to transform itself
in the face of plummeting sales stemming from illegal online song swapping.
CD sales have fallen 25 percent since 1999, according to the Recording Industry
Association of America, which this fall launched an aggressive legal campaign
against overzealous music downloaders.
In a press release announcing last week’s deal, the investment group acknowledged
that forging a business plan for Warner Music – which includes record labels
Warner Bros., Atlantic and Elektra Records – will be an uphill battle.
“While we do not foresee an immediate upturn in the overall market for recorded
music,” Thomas H. Lee Partners Managing Director Scott M. Sperling said, “we
believe opportunities are emerging that bode well for the long-term future of
the business.”
Providence Equity was founded in 1991 by Brown University graduates Jonathan
M. Nelson, now the firm’s president; and Glenn M. Creamer, now managing director.
The firm has 26 employees: 15 in Providence, eight in London and three in New
York, according to its Web site.
Mike Colias is a contributing writer to PBN.
