Happy Labor Day weekend, hubsters!
Aaron Weitzman here with today’s Wire at the unofficial end of summer.
Workers unite. As we celebrate workers this weekend, it’s a good reminder that employment issues continue to present huge challenges for companies, as people redefine and refine what they want out of work.
Figures released just this morning show that US employers continued to add jobs in August, albeit at a slower pace than the previous month. Job growth has been resilient throughout the year.
Nevertheless, talent acquisition and retention are the biggest factors limiting growth of portfolio companies this year, many private equity firms have told PE Hub. Earlier this summer, PE Hub’s Iris Dorbian wrote about how PE firms are investing in staffing and recruiting companies.
Among some buyers who have invested in this space are Halifax, Littlejohn and TA Associates.
So whether it’s Littlejohn’s buyout of Dayton, Ohio-based Alto Healthcare Staffing, or Halifax Group’s recent investment in Houston-based The Liberty Group, which provides staffing and screening services to the real estate sector, PE is betting that the employment issues will stay top of mind for some to come.
On the road again. Lots of people will be traveling this weekend, and many will be hitting the road. PE Hub reporter Obey Martin Manayiti has done a lot of reporting on PE firms investing in all things auto.
Last month, Obey wrote about why firms including Investcorp, Clearlake and Atlantic Street are snatching up parts makers.
Private equity dollars are streaming into the automotive aftermarket, spurred by shortages of parts for new cars, snarled global supply chains and rising prices. These market forces all add up to keeping cars and trucks on the road for longer, which is good news for PE firms investing in parts makers. PE Hub has noted a flurry of recent deals involving parts for heavy trucks, off-roads vehicles, racing cars, motorcycles and even electric vehicles.
“The supply chain disruption did have one positive effect as a demand driver,” Steve Miller, Investcorp’s managing director told PE Hub in an email exchange. “It has limited the number of new trucks/cars that could be produced, which means the average car or truck on the road has gotten a bit older. Older trucks and cars are more likely to need aftermarket parts, so that benefits the industry as a whole.”
Workin’ at the car wash. And back in May, Obey reported that PE firms are snatching up car wash companies at a rapid clip.
Investors have discovered the appealing attributes of the car wash business, including the basic service, strong margins, low working capital, labor efficiency and recurring revenue base.
As car ownership represents one the biggest investments many people can make, outside home ownership, caring for it is a priority. “Whether new or old, maintaining one’s car is important,” Gary Dennis, founding partner and vice chairman of Mammoth Holdings, told PE Hub. A trip to the local car wash is both emotional and economic, he said.
“Over the last few years, the professional investor class has discovered the appealing attributes of the car wash business: the basic service, strong margins, low working capital, labor efficient, recurring revenue base, and that the industry is highly fragmented and ripe for consolidation,” Dennis explained.
Lights. Camera. ROI. Iris wrote a cover story for Buyouts, where she did a deep dive into Blackstone and Apollo, which have recently held starring roles investing in the entertainment sector. A revolution in content consumption means fierce competition and plenty of plot twists ahead, she wrote.
The catalyst was the explosion of content and streaming platforms. Neither could be ignored, nor the fact that legacy media assets, such as broadcast TV, were continuing to bleed both viewership and advertising revenues. Holding talks with former Disney executives Tom Staggs and Kevin Mayer, Blackstone sought to create a new template for investing in media. Candle Media was born.
These moves have left some in private equity scratching their heads, wondering what Blackstone is doing, making these expensive bets on talent when other firms have played it safe by picking up old film libraries or music catalogs from iconic or veteran talent, Iris wrote.
The answer, as Blackstone tells Buyouts, is simple: The valuations they’re paying are quite reasonable – critics be damned.
“We’re building it from scratch,” says David Kestnbaum, a senior managing director at Blackstone, when asked how Candle Media has evolved. “We don’t want to buy things to fix legacy issues. We want to build it brick by brick the way we want the company to work. It’s not a traditional private equity example of buying a more established company. It’s much more strategic and growth driven.”
“Streaming platforms have transformed the way people consume content,” says Joe Baratta, Blackstone’s global head of private equity. “The trend toward consuming content from these platforms is irreversible, and industry-wide spend levels on this content will continue to grow. Candle is built on serving great content to both streaming and social media platforms and is not dependent on any one distribution partner. Candle’s value is in attracting and creating great content.”
Apollo is taking a different tack.
Earlier this year, Apollo invested $760 million in Legendary, a media company that has produced a slew of top-grossing box office films, such as the Oscar-winning blockbuster Dune as well as TV shows that include Lost In Space and Carnival Row. Apollo was motivated to make the deal for several reasons, including Legendary’s massive film library. Also, the company owns and creates its intellectual property, which can be commercialized and monetized in several profitable ways, such as merchandising and video games.
“Our goal is to come out swinging with these assets,” said Apollo partner Aaron Sobel. “There are two ways that most buyers invest, one is in IP and the other is to buy up talent. We love talent but we feel a smarter way of [investing in the space] is supplementing that with IP, versus buying just a person. This can meaningfully de-risk an investment.”
Wishing everyone a safe and happy long weekend! Until next time…