Target I: Elite Racing
Target II: La Jolla Holding Group LLC
Target III: Competitor Publishing
Sponsor: Falconhead Capital
Financial Advisor: Elite Racing: RBC Daniels
Legal Advisors: La Jolla: Allen Matkins; Elite Racing: Heller Ehrman; Competitor Publishing: DLA Piper; Falconhead Capital: Kirkland & Ellis
Falconhead Capital is bringing an old business model into a new industry segment. With its acquisition and combination of three “endurance sport” publishing companies, the New York-based buyout firm plans to create an industry powerhouse with the potential to double some parts of its business in the first year.
Falconhead Capital plans to combine the three San Diego-based companies—running event operator Elite Racing, magazine publisher and event planner Competitor Publishing, and Triathlete Magazine—into a new platform company called Competitor Group.
The firm declined to provide financial details on the deal, saying only that it wrote a typically sized equity check of between $35 million and $50 million for the three companies. David Moross, CEO and chairman of Falconhead Capital, said his firm “spent a long time nurturing and developing” relationships with the three entrepreneurs who built the companies. That courtship included 18 months of wooing from Peter Englehart, the Falconhead Capital operating partner who will lead the combined company as CEO. Englehart’s work paid off, as the three entrepreneurs have agreed to stay with the new umbrella company.
Combining an events business with related media outlets to create scale and brand awareness is not a new idea; many traditional and new media publications, for example, have complimentary trade show and conference operations. But Falconhead Capital may be the first buyout firm to take cues from sports media giant ESPN by integrating sporting events with a media brand name. Focusing specifically on triathlons and marathons, the firm aims to build the world’s largest new media and event platform serving the niche market Falconhead Capital defines as “endurance sports.”
Within the athletic event and media world, the endurance sport market itself represents a new frontier for buyout firms. The market is ripe for consolidation because it consists of a network of privately held entrepreneurial outfits, and Falconhead Capital expects to capitalize on those roll-up opportunities. “We’re definitely in the market to expand through acquisitions,” Moross said.
By purchasing race event contracts from host cities, Competitor Group could double its event business in the United States alone, Moross said. Event entry fees account for 90 percent of revenue, but the opportunity to sell bundled event promotions to advertisers in the magazines and Web sites further increases growth capacity, he added. Based on new registrations, the triathalon industry is growing at a 30 to 40 percent rate, according to Moross.
Falconhead Capital is anticipating even more growth to come from the online portals of Triathlete Magazine and Competitor Publishing’s titles, Moross said. The combined company can cross-fertilize sales opportunities because interactive information about training, nutrition and products will come from the same source as the organizer of the races.
The firm was offered more leverage than it took from lender CapitalSource, although that’s not surprising given Falconhead Capital’s frequent strategy of going heavy on equity at the outset of an investment with the expectations of recapitalizing it in the second year, Moross said.
Jeff Kilrea, co-president of corporate finance at CapitalSource, said his firm will keep the debt on its balance sheet but expects to bring in other lenders when Falconhead Capital begins executing add-on acquisitions.—E.G.