SMG, the world’s biggest third-party manager of sports and entertainment facilities, is up for sale again, this time with a bit of intrigue: At least one competitor is barred from pursuing the business.
Oak View Group CEO Tim Leiweke, whose company recently formed OVG Facilities after acquiring Pinnacle Event Services, a small facility management firm, said his group is prohibited from submitting a proposal to buy SMG.
“We were told that we couldn’t bid,” Leiweke said. “I don’t know if it’s because of our purchase of Pinnacle or years of competing with [SMG during Leiweke’s tenure as AEG’s president and CEO]. Who knows? So, we’ve stood down and are focused on growing Pinnacle. We’re proceeding with our own route.”
Wes Westley, SMG’s longtime president and CEO, and officials with Northlane Capital Partners, a billion-dollar private equity fund and SMG’s current owner, did not return emails and phone calls for comment.
“There’s a history there [with Leiweke],” said one source advising a potential buyer. “Ten years ago, when SMG was sold to American Capital, AEG plucked away a bunch of SMG employees. There may be some bad blood.”
Said Leiweke: “It would not surprise me.”
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U.S. Bank Stadium in Minneapolis is among SMG’s premier properties.
NANCY KUEHN / MINNEAPOLIS / ST. PAUL BUSINESS JOURNAL |
Harris Williams & Co., the investment bank that brokered the sale of sports concessionaire Centerplate in 2012, is filling the same role for Northlane. Bids are due late this month.
Harris Williams has issued a book detailing SMG’s assets, which include revenue tied to the operation of six NFL stadiums, two NBA arenas and about a dozen major college facilities among its 200 accounts. SMG’s food service division, Savor, has more than 50 concessions and premium catering contracts, most of which are tied to SMG’s building management deals.
In addition, SMG Europe, the company’s international group, runs a dozen facilities overseas including arenas in England, Northern Ireland and Germany. All told, it’s an extensive client roster with tremendous upside depending on the individual markets, sources said.
Ultimately, SMG has a number of long-term contracts and recurring revenue, which is appealing to many of the company’s suitors, with the thinking being that by creating efficiencies and better operating procedures, they can grow revenue.
SportsBusiness Journal contacted SMG’s other competitors to gauge their interest, keeping in mind that sources said potential buyers had been required to sign a nondisclosure agreement preventing them from discussing the situation. Officials with Comcast Spectacor, which like SMG is based in Greater Philadelphia, said they were not interested in acquiring SMG. In Los Angeles, Dan Beckerman, president and CEO for AEG Facilities, declined to comment.
Some view Legends as a prospective buyer. For Legends, whose principal owners are the Dallas Cowboys and New York Yankees, venue operations is the one major component missing from its all-inclusive “360 model” of facility development.
Other sources say Legends is not involved because the company is more interested in the premium side of facility development tied to selling suites, seat licenses and club seats, one piece of the business it has grown rapidly over the past few years. Legends officials declined to comment.
Endeavor, parent company of WME, another firm expanding its market share in sports, passed on the opportunity to acquire SMG, sources said.
To this point, based on those responses and sources familiar with the negotiations, it appears SMG will remain a property held by private equity, with Kohlberg Kravis Roberts and Texas Pacific Group among the bigger investment firms showing interest, sources said.
“The financial markets are good, which is really helpful,” one source said.
The key question is whether SMG’s natural competitors feel it’s worth the investment to pay hundreds of millions of dollars to buy the 40-year-old company when some think it’s smarter to grow business instead by competing for SMG’s bigger accounts as those individual deals come up for bid.
In general, that was the case five years ago when Centerplate, which had some marquee food and retail accounts and some not-so-attractive deals, changed hands between private equity firms. Kohlberg & Co. sold the food vendor to Olympus Partners for about $550 million including debt after a process in which none of Centerplate’s competitors submitted bids.
Ten years ago, American Capital purchased SMG from Aramark and Hyatt Corp. for a sum valued at $631 million before it spun off to the Equity III fund seven years later. Now, SMG could potentially sell for $750 million based on the company’s EBITDA, said one source familiar with the company’s financial structure.
SMG has been on the block for several months now, the second time in the past year that the company has gone through a sale.
In June 2016, Ares Capital, an investment fund founded by Atlanta Hawks co-owner Tony Ressler, announced it had acquired the assets tied to the old American Capital, a separate private equity firm and SMG’s owner since 2007.
In that deal, which was approved in early January 2017, Ares Capital paid $3.4 billion in cash and stock for a fund called American Capital Equity III, which was formed in 2014 with Ares Capital as a limited partner. About three weeks later, Northlane Capital Partners announced a spinoff from American Capital, a deal in which it acquired Equity III’s assets, whose portfolio includes SMG.
Whoever ends up buying SMG will face a much different world over the next five years as more firms such as Oak View Group, Legends and Learfield-IMG College grow their 360 models and focus on issues of greater concern such as security and counterterrorism, Leiweke said.
“I think it’s a perfect time to go out there and give people a choice,” he said. “I think companies that are uniquely aligned in places like content, sponsorship and security … that’s what facilities want and that’s where they’re headed.”
