SBJ/May 28 - June 3, 2007/This Weeks News

Reports: American Capital buys SMG

American Capital, a Bethesda, Md.-based investment firm, has acquired SMG, North America’s biggest arena and stadium operator, for a sum in the range of $500 million, according to two high-ranking industry executives.

Reliant Stadium in Houston is one of SMG’s major
league facilities management accounts.

The deal was done for $536 million, according to one source who had knowledge of a bid that was considered but ultimately rejected by Aramark and Hyatt Corp., the two companies that co-owned SMG. The second source, a former Aramark executive, said, “I know it’s at least that much if not more. Apparently this company is pretty aggressive.”

Yet another executive said those numbers are probably too high, but at the same time he confirmed that he was part of an investment group that put in a bid for $425 million.

Officials from American Capital and SMG would not confirm the sale price and did not return calls for comment. SMG President and CEO Wes Westley was out of the country and unavailable for comment, according to a woman answering his office phone.

An official from Aramark declined to comment.

On its Web site, American Capital describes itself as the second-largest publicly traded alternative asset manager in the United States, owning $11 billion in assets. Since its August 1997 initial public offering, American Capital and the funds it manages has invested about $13 billion in more than 250 companies, including taking a $23 million stake in NFL helmet maker Riddell Sports Group.

SportsBusiness Journal previously reported that SMG was for sale and that investment bank Morgan Stanley was coordinating the deal.

Newspapers in Evansville, Ind., and Reading, Pa., where SMG operates arenas, reported the transaction last week.

Westley sent a letter to the public bodies that own the facilities in those secondary markets informing them of the change in ownership. The letter stated that there would be no change in management at the facilities SMG operates and that the company would remain a stand-alone entity.

SMG’s sale price is surprisingly high based on the management fees it collects for operating facilities, food concessions and booking events, said one former SMG executive. Those assets are worth about $40 million annually, he said.

By comparison, Ogden Entertainment, a third-party facility manager and food concessionaire, was sold to Aramark in 2000 for $236 million.

SMG operates about 180 publicly owned facilities, including 11 major league buildings and five NFL stadiums.

SMG, unlike its chief competitors AEG and Global Spectrum, owns little if any equity in the venues it manages, and industry observers questioned the motives of an outsider acquiring SMG.

“You look at AEG and they are buying stuff up for strategy,” said Brad Mayne, president and CEO at American Airlines Center in Dallas. “I’m not sure what American Capital has that gives them that purpose.”

SMG holds about 75 food service accounts and also has event booking and marketing services that include promoting concerts at Chase Field and Churchill Downs and selling sponsorships at BankAtlantic Center.

Another source who worked for Ogden speculated that American Capital could turn around and sell SMG’s assets individually. When Aramark bought Ogden, it took over most of those food accounts and SMG inherited many of the building contracts.

On the other hand, SMG could change its philosophy and expand its concessions business now that it is free from Aramark, consultant Chris Bigelow said.

Most of SMG’s food contracts were in facilities where SMG managed those buildings, and there was an understanding that SMG would not go after deals Aramark was pursuing, particularly on the big league level.

“I don’t know what the official relationship was, but that’s what it seemed like,” Bigelow said. “When it was a major investment, Aramark went after it. I assume that would change now.”

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