When Matt Gibbons wanted to launch the first private equity fund at Manhattan West, it seemed natural to focus on the industries where most of the firm’s clients made their wealth—sports, media and entertainment.
“It’s where we have a lot of the secret sauce with our client network,” Gibbons said on a phone call. “Being headquartered in [Los Angeles], it’s a lot of celebrities, musicians, entertainers, media executive and professional athletes—the NFL, NHL, NBA are a big hub for us.”
Manhattan West, which manages $634 million in assets, announced the launch of its private equity fund last week, aiming to invest up to $100 million over the next five years. The fund is just getting off the ground, having made three investments: a majority stake in the F1 Exhibition, a traveling fan experience that includes displays on the history of Formula One and an immersive room with the sights and sounds of the pit; equity in Room Round Live, producer of the F1 exhibit as well as producer of exhibits on Tupac Shakur and Jurassic World and touring shows like Baby Shark Live!; and an investment in Vino Vault, a wine storage and auction business.
“From my perspective, it’s a dream come true: I have a dynamic where I have an evergreen source of capital that’s very invested in our platform and showing us deal flow on a proprietary, weekly basis,” Gibbons, 33, said.
The F1 Exhibition deal holds a lot of the characteristics that Gibbons and his team look for. One is being able to quietly evaluate and seek insight into potential investments, rather than engaging in open bidding against larger PE rivals. “The hard part is that in media, entertainment and sports there are a lot of shiny pennies,” Gibbons said.
The client network, along with his team’s background in the sectors—Gibbons is veteran of Power Rangers billionaire Haim Saban’s investment office—should help discern good long-term deals from what he terms “froth.” In the case of F1, he points to Manhattan West contacts at F1 owner Liberty Media, and elsewhere in the racing business and media, as helping tip the scales to doing the deal.
Another characteristic is the F1 exhibit’s ability to generate a lot of cash flow off the bat. In a nod to the preferences of its investors, who must invest a minimum of $3 million to be a Manhattan West client, the private equity fund aims to throw off a 15% annual dividend as part of total returns, ideally running a yearly average around 30%. When the F1 Exhibition opens in Madrid in March, it will provide a cash yield much higher than that 15% target, said Gibbons. The touring exhibition is targeted at the estimated 495 million “content-starved” F1 fans who won’t attend a race annually but will gladly pay $20 or so for a show ticket.
“That doesn’t mean every investment we make has to meet that sort of criteria,” Gibbons said. “We’re happy to do a more run-of-the-mill private equity investment where there is no return for five years or more. We’re trying to build a balanced portfolio.”
Private equity money funneling into sports is nothing novel. New sports funds this year from RedBird Capital, Arctos Sports Partners and Ares Capital Management have raised more than $7 billion. Wall Street’s interest is driven by a track record of strong growth in team valuations, the “appointment viewing” of sports programming and the relative resiliency of sports business models compared to other sectors. Given the size of competitors and its desire for income, where possible, means the Manhattan West Private Equity Fund probably won’t be a part of the institutional money flocking to purchasing stakes in major league franchises.
“Below $100 million in revenue or enterprise value [of an investment target] is probably a good threshold,” said Gibbons, who added the fund focuses on equity ownership rather than debt or credit lending. “That means for us it’s got to be a company we can write a check into, have a significant ownership piece in and be at a stage in its lifecycle that we really move the needle—a hundred-million-dollar company we feel we can turn into a billion-dollar company.”
The criteria for the fund means Manhattan West is looking at middle-market sports and entertainment businesses. Essentially, these ventures fit the oft-cited business cliché of selling the pick axes to the gold miners, rather than mining for the gold itself—in this context, the gold is sports media rights and entertainment content. Gibbons says the fund is also interested in niche leagues where the investment offers good exposure to the sport and its fanbase.
“We’re looking to some degree for the boring businesses that are benefiting from the gold rush that happens,” Gibbons said. “Niches within the sports subsector where we can roll up our sleeves and take them to the next level. We love sports.”