Elevation in the media spotlight
______________________________________________
by Kelly Holman
TheDeal.com
18, Nov 2005
When veteran buyout-fundraising executive Kevin Albert launched marketing efforts for Elevation Partners' debut megafund in July 2004, when he was manager of Merrill Lynch & Co.'s private equity fundraising group, he had to convince investors that Elevation wasn't raising a narrowly focused, music-centric fund. Investors were skeptical — and understandably so, since the news had surfaced a month earlier that Irish rock star Bono was joining the new firm.
The unlikely-sounding development had catapulted Elevation into the media spotlight. One Canadian newspaper headline summed up the half-amused, half-suspicious general reaction: "Will Bono pore over Excel spreadsheets?"
Ultimately, however, Menlo Park, Calif.-based Elevation overcame what Albert — who joined the firm as a managing director and head of investor relations in February — calls a knee-jerk reaction from financial executives. They initially saw the rock icon's appointment as a gimmick to attract money from star-struck potential investors.
In fact, Bono is well-known in the international political world as well as in the entertainment industry, Albert says. Naming him a partner hewed to the buyout industry's penchant for tapping well-known ex-corporate chieftains to serve on their investment teams and went a step further. It distinguished Elevation Partners, which also has more traditional financial talent, from the outset.
More importantly, Albert says, the moved signaled that Elevation was serious about investing in a particular niche of media and entertainment.
Other private equity houses, such as Abry Partners LLC and Providence Equity Partners Inc., also deploy capital in media, he says. But they tend to focus more on content distribution businesses like cable television and radio rather than exploiting the possibilities within intellectual content, he says.
"There hasn't been a private equity firm that has specialized in intellectual content like Elevation Partners," says Albert.
Any doubts about the kinds of businesses the firm planned to invest in following the close of its $1.9 billion fund in August — coming in well above its initial $1.5 billion target — were dispelled earlier this month when it announced its first two deals.
The first revolved around a $300 million partnership called BioWare/Pandemic Studios that Elevation established with high-profile video game companies Pandemic Studios LLC of Los Angeles and BioWare Corp. of Edmonton, Alberta.
Less than a week later, Elevation agreed to purchase $100 million of convertible preferred stock in publicly traded real-estate Web site operator Homestore Inc., based in Westlake Village, Calif., a deal predicated on the future growth of Internet advertising.
Elevation, which shares the same name as a song from the album "All That You Can't Leave Behind" by Bono's band U2, employs a hybrid approach to investing. The firm makes growth capital and majority stake investments ranging from $50 million to $300 million in established businesses.
Not your average middle-market investment shop, Elevation wasn't the brainchild of the typical white-shoe buyout executive, either. Partner Roger McNamee spearheaded the firm's launch in 2004 by teaming up with former Electronics Arts Inc. president John Riccitiello.
A co-founder and adviser of Silver Lake Partners, the successful technology investment-focused buyout shop, the wavy-haired McNamee is an astute, assertive tech investment guru. He co-founded Menlo Park, Calif.-based, late-stage venture capital firm Integral Capital Partners in 1991 following a stint managing a science and technology investment fund for financial services firm T. Rowe Price Group Inc.
And when he isn't dealmaking, the long-time Silicon Valley resident plays guitar for a West Coast psychedelic rock band, The Flying Other Brothers.
Besides McNamee, Riccitiello and Bono, Elevation's partner roster includes former Blackstone Group LP senior managing director Bret Pearlman, ex-Silver Lake principal Marc Bodnick and former Apple Computer Inc. chief financial officer Fred Anderson.
"They've put together a group of people that combined make for an interesting team," says Erik Hirsh, chief investment officer of Hamilton Lane, a Philadelphia private equity advisory firm. "When they started the firm and raised their fund, I think the perception then, and it continues now, is that this is a unique group with a unique strategy."
Elevation's McNamee, who still advises Silver Lake Partners on a part-time basis, waxes bullish when discussing the opportunities ahead of Homestore. He says that, given the increasing amount of online advertising and the fact that 74% of Americans use the Internet to gather information on real estate purchases, Homestore is situated on an "inflection point" for future growth.
"The model here is very long term; you've got to identify a company that can grow," he says.
The statement mirrors the approach of most private equity firms. But Elevation is positioning itself to ride the tide of consumer interest in media and entertainment content. The trend is seen in new technologies like Apple's iPod and the proliferation of digital content over all kinds of gadgetry.
"In many cases traditional media companies are not taking advantage of exploiting the assets they own," Albert says, matter-of-factly.
It remains to be seen whether Elevation will ultimately succeed, given the competition it faces from other later-stage capital and buyout-hybrid firms like Summit Partners, which tapped into the content space two years ago through an investment in German ringtone company Jamba! AG.
One thing is sure, though. Elevation's specialty focus and its $1.9 billion war chest gives the California firm a solid chance of winning the next media auction that comes its way. |
