IVEST buys rights to Care Bears; PSG Equity on AppHub add-ons; SEC rules a Dodd-Frank moment

Good morning Hubsters, Craig McGlashan here filling in for MK Flynn on the Thursday Wire.

We’ve got a deal that proved extremely timely this morning, with IVEST Consumer Partners set to announce that it has bought the licensing rights to children’s franchise Care Bears.

PE Hub’s Iris Dorbian got the inside story from IVEST co-founder and managing partner George Jones, who talked about how the investment comes at a great time for toys, thanks in large part to the summer blockbuster Barbie.

Switching sectors, we then hear from PSG Equity’s Matt Stone and Kate Nimmo about their firm’s plans for e-commerce software company AppHub – including how a recent add-on could leverage the power of generative AI.

Rounding out the Wire, we tackle the big regulatory news from yesterday, after the Securities and Exchange Commission showed its hand on some big rule changes for private equity.

Care Bear market
Opening today, we have a scoop by Iris Dorbian, who reveals that IVEST Consumer Partners has snapped up the licensing rights to popular children’s franchise Care Bears via its acquisition of parent owner Cloudco Entertainment for $100 million.

The deal arguably couldn’t come at a better time for toys, Iris writes. Witness the summer box office success of Barbie, which has racked up over $1.2 billion worldwide and has become Warner Bros’ highest-grossing movie, underscoring the big appetite for women and girl-related content and also the marketing power of a beloved toy franchise.

“It’s better to be lucky than smart, right?” quipped George Jones in an interview with Iris. Jones is the co-founder and managing partner of IVEST, which was founded in 2013 and targets the niche consumer and licensing products sector.

“We had no idea about the Barbie thing,” he tells PE Hub, when talking about the phenomenal success of the movie, which reimagines the iconic doll as a real-life woman through a feminist lens. “Living in that world, we thought Barbie would be big. No one expected it to be as big as it is.”

Sticking with entertainment for a second, and private equity firm New Mountain Capital is looking at paying $1.7 billion to buy performance rights organization BMI, sources told Billboard.

Such rights deals are becoming more popular. Back in April, Iris spoke with the founders of Lyric Capital, whose holdings include songs recorded by a wide range of artists, including Taylor Swift, Whitney Houston, The Who and Frank Sinatra, among other household names.

Despite that though, a report from S&P Global yesterday found that although the movies and entertainment sector overall enjoyed 28 private equity and venture capital deals totaling $1.02 billion in the second quarter – a 161.5 percent increase on the first quarter – the aggregate transaction value was a drop of 83.8 percent from the same quarter in 2022.

Artificial intelligence
PSG Equity, a Boston-based growth equity firm that invests in software developers and tech-enabled service providers, announced in July an investment in AppHub, a San Francisco and New York-based e-commerce software company. At the same time AppHub revealed an add-on acquisition in Boost, an AI-powered search and discovery tool.

Artificial intelligence, especially generative AI, is an ongoing theme for PE Hub’s coverage of PE deals in 2023. Private equity firms are increasingly interested in the technology both from the investment angle and from the value creation perspective for their existing portfolio companies.

To find out more about the AppHub deal and PSG’s strategy, PE Hub’s MK Flynn turned to the PE firm’s Matt Stone, managing director, and Kate Nimmo, senior vice president.

Here’s a snippet from the interview:

How does AppHub fit into PSG’s portfolio and investment thesis?
Stone: At PSG, we’re focused on middle market B2B software companies at an inflection point, where we believe that we can help them grow to the next level through our team’s collective domain experience and operational resources. We look for companies, like AppHub, with the capacity to deliver a comprehensive solution to a fragmented market by adding capabilities organically or through our buy-and-build strategy.

AppHub sits right in this sweet spot – an established software platform with great potential to scale within a large, growing market. We have made several investments in the e-commerce enablement space to-date, including NoFraud, Pacvue, Searchspring, Stylitics and Yottaa.

Big changes
The Securities and Exchange Commission had the attention of the private equity industry yesterday as it adopted what my colleague Bill Myers called the “most sweeping new rules for the private fund industry since Dodd-Frank.”

Private fund advisers will be forbidden from passing along the costs from investigations unless they obtain informed consent from their investors, and they’ll have to disclose any fees or expenses for the costs of exams, enforcement or other compliance matters under new rules adopted by a divided SEC on August 23.

The new rules are lighter-touch in some areas than the original proposals, though they still contain many of their controversial prohibitions. But by introducing rigid disclosure requirements for activities the proposals would have banned, they provide some wiggle room, and other activities are protected with grandfather clauses.

For example, where the SEC’s proposal banned charging fees and expenses non-pro-rata among LPs, doing so will be exempt if “the allocation approach is fair and equitable and the adviser distributes advance written notice,” including a description of “how the allocation approach is fair and equitable.”

Funds can also use their tax bills to reduce clawbacks only if “the adviser discloses the pre-tax and post-tax amount of the clawback to investors.”

And they can borrow or receive credit extensions from private fund clients if they provide “disclosure to, and consent from, fund investors.”

Read Bill’s full analysis here.

We also took a look at some regulatory issues over on PE Hub Europe this morning, specifically about how using an IPO as an exit route can avoid some of the increased scrutiny given to antitrust concerns.

That’s all from me – Obey Martin Manayiti will be with you tomorrow to take you through to the weekend.

Cheers,

Craig