Private Equity Dealmaking in the Media & Entertainment Industry

EMS:

Hi Vania, thank you so much for being with me today.

Vania Schlogel:

Hi Elana, lovely to be here.

EMS:

Absolutely. So, to kick off the conversation, tell us a little about the firm and how you got to where you are today.

VS:

So, Atwater Capital is a firm I founded in 2017. We're Los Angeles-based and very sector specialized in media and entertainment. We manage approximately $500 million. And we invest a lot in the lower middle market. So, I'm very fortunate, 'cause we get to back a lot of incredible innovators and disruptors across the media sector, everything from film, entertainment to music to digital media.

EMS:

Great, Vania. And as a follow up, your transaction with 88rising is very exciting, especially with its presence at Coachella. Love for you to walk us through everything related to that transaction.

VS:

When it came to 88rising, they actually approached us because of our reputation as being a deeply operational shareholder. So, what I mean when I say that is we don't try and run companies when we invest in them. That's actually a formula for disaster. What we do is we're very thoughtful about whom we back, and then as soon as we make that kind of go/no-go decision, then we're incredibly supportive and value-added shareholders. And so having that kind of theme of partnership has built us a reputation. The co-founders at 88 had heard of us, and we really just kicked off a human dialogue. The way that this started, and this is kind of the nature of proprietary deal sourcing, there was not a process, interestingly for this one. It started in an atypical way, maybe even an old school way for private equity, how I imagine things used to be before the industry got very institutional and built out. And it was a human relationship that got built. Then it led to talking about strategy and then it ultimately culminated in the opportunity to deploy capital and back the company.

EMS:

And Vania, more specifically, what were some of the greatest or biggest opportunities you saw with that transaction, even though they did approach you?

VS:

The most exciting thing for me, and this is a big theme that we invest behind, is investing in companies that are super serving demographics in a very authentic and genuine way. And these demographics have oftentimes been kind of ignored by mainstream or traditional media. So, specifically for 88rising, I remember having this moment of walking through their festival, Head in the Clouds, in Pasadena and seeing kind of 70,000, you know, predominantly Asian Americans gathered together in the Pasadena Rose Bowl to just celebrate Asian artists, Asian culture, Asian food. That I sort of juxtaposed with growing up and being mercilessly teased sometimes for, you know, growing up as an Asian American kid. And so, there's something that, while that's good commercial business, there's something also very touching about that, that folks want to engage with companies, with individuals that care about them, that care about their community in an authentic way. And so, to me, that's really the baseline of what excited me about this company. And the knock-on effect of that is that there's actually a lot of commercial success to be had for that as shown with 88rising, as shown right now with women's sports, right? And how long have so many people been fans of women's soccer or women's basketball, and now it's finally starting to be recognized, that fandom and that engagement. So, I think it's just thematically, there are a lot of incredible companies that have been super serving demographics for a while in a very caring and authentic way, and those companies are really exciting for us at Atwater capital.

EMS:

And Vania, on the other hand, with respect to 88rising, what were some of the biggest challenges you had to conquer with that transaction?

VS:

The biggest singular challenge was actually the opportunity to invest. So, what we have to often articulate when we speak to LPs is we source a lot of our deals on a proprietary basis. Actually 100% of our capital deployed has been in situations that are by invitation on a proprietary basis. And so, one's competition as a GP is not necessarily another GP, it's convincing the founder that he or she should do a deal. So, your true competition ends up being a deal just doesn't happen, because, and it makes sense, because as a founder, if one has put in all the blood, sweat, and tears to get your company to a certain position, at that point you are really caring about who is that best-in-class partner that gives you the highest probability of taking your company to the next level. And so, for us, and especially in this transaction, this is already a very successful company. It's a company with a global brand. And it has a founder and leader in Sean Miyashiro that has a very distinct vision of where he's going. And so, then the conversation becomes much more around, "Okay, you tell me how you're gonna be a great partner to me." And so even the opportunity to invest ends up actually being, especially when it comes to proprietary deal sourcing, oftentimes the biggest hurdle to overcome. And then the rest of it feels very similar to just how we typically invest in companies.

EMS:

That segues nicely into the question I have for you on due diligence. Love for you to walk us through the due diligence process with 88rising or overall, in some of your other transactions you completed.

VS:

So due diligence for private equity is oftentimes segmented through broad based, and I'd say categories that you see replicated oftentimes in due diligence. There's the commercial side, accounting and tax, and legal, both on the commercial and corporate governance side. And so that ended up being a fairly standard process. The one thing that I find to be interesting now, running Atwater versus, for example, my days when I was doing more mega cap private equity investing is the difference in the availability of data, the form that it takes, are you going to get audited financial statements or not? And so there requires a certain level of understanding, experience, and flexibility on the part of the GP, knowing what asset class you are playing in. Because if you're playing in the mega cap side, maybe it's a take private of a company that's traded publicly for the past decade. That level of information is going to be highly regulated and standardized, and you pretty much know what you're getting. The kind of growthier you get, the information is far less standardized. You have to really think about the content rather than the form, and also oftentimes work with advisors that know how to get to answers while not necessarily looking at data that is in that standardized form that one might be used to.

EMS:

Great, Vania, and as a follow-up question, what are you looking for in the buy-side process to ensure that a mutually beneficial and efficient transaction could be consummated in today's economic and transaction market?

VS:

I think it's just like any other relationship, whether it's friendship or dating, you want transparency. So I think being very clear in communication around deadlines, around what is to be expected by when, around the availability and provision of data so that you can also as a GP stage out, you know, you bring in other commercial advisors because you are not the expert at everything, and so you rely on a lot of smart folks such as yourself to help bring some of that expertise. And so also staging out that diligence process and playing quarterback to that, it's really important to understand when provision of data is going to happen and exactly what data, so you know when to bring in your financial and accounting advisors, for example, versus your corporate lawyers. So, all of that around extreme and radical transparency is very helpful. And then also even to the level of communicating preferences. You know, I think for any great business outcome, be as open, state your intentions up front, and that at least gives the party the opportunity to meet and potentially exceed your expectations as long as you communicate them.

EMS:

Vania, we've covered a lot of ground today, and wanted to see if you have any final thoughts you'd like to share with us.

VS:

No, just thank you very much for including me today. I think media and entertainment is the most exciting place to be. I think private equity is the most joyous job that one can have. You have the privilege of meeting a lot of incredible, innovative founders and working with the smartest folks to kind of get to the right answers and being able ultimately to back a lot of founder vision. So very pleased to share a little bit of my experience with you.

EMS:

Vania, I wanted to thank you so much for sharing your perspective with our listeners.

VS:

Thank you.

EMS:

And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.