After two decades of false starts, the great consolidation of Hollywood management companies seems to be underway.
International financial services aggregator Focus Financial Partners, which is publicly traded and has a market capitalization of $ 4 billion, has acquired two major Hollywood business management films. These are the giant NKSFB (formerly Nigro Karlin Segal Feldstein & Bolno) in April and Gelfand, Rennert and Feldman a year earlier. In addition, NKSFB merged with GSO Business Management just before being acquired by Focus Financial.
In recent years, merger pressure has built up in Hollywood corporate management firms, as founding partners sought to sell their stakes in an unprecedented wave of retirements. These founders established their business in the boom of the 1980s and 1990s.
“I wouldn’t be surprised to see more of these types of transactions over the next six to 12 months,” says Mickey Segal, Managing Partner at NKSFB.
Not that there is anything surprising about it. Management companies are merging all the time and for a variety of reasons, in addition to partners at retirement age who want to sell their interests. David Schachter, senior vice president of wealth management at UBS Financial Services and working with business leaders, believes that acquirers “buy a potentially growing cash flow while allowing member companies to control their practices. Sunken businesses are generally able to maintain their autonomy. They can share overhead and intellectual capital.
Other reasons for a merger are a buyer’s desire to fill a gap, such as entering into a musical practice, tax expertise, or geographic reach. In other cases, the seller may be in financial difficulty.
In these cases, size matters. Big players can more easily borrow money to finance expansion and better bear overhead costs such as cybersecurity, which is a major concern as the financial transactions of customers using their personal digital devices are targeted by hackers.
Arty Erk, partner at Citrin Cooperman, a national accounting firm with a business management firm in Hollywood, advocates for consolidation as it brings together great expertise under one roof.
“We have many tax specialists within the firm who have the wide range of expertise, from personal inheritance tax to international taxation to non-profit organizations, which many of our clients have,” did he declare. For those leaving small businesses where they were jack of all trades, Erk jokes that they “don’t have to change light bulbs anymore.”
Joe Rust, regional managing partner, California, at Prager Metis who acquired to bolster his practice as a business director in Hollywood, says buyers already in the company have an insider understanding “to understand what the [selling] the partner group needs’ to make a deal. This is because there are often older founding partners who want to go into the sunset while other middle aged partners within the same sales company want to stay in the saddle.
Business leaders, most of whom are accountants by training, look after talented and executive clients with their banking, tax matters, retirement planning, personal spending plans and making major purchases such as only houses and cars. They tend to have close, long-term relationships with customers. They are usually not primarily responsible for selecting more volatile investments such as equity portfolios.
Interestingly, new consolidator Focus Financial has historically focused its efforts on acquiring stock picking asset managers, although it branched out into Hollywood corporate managers after buying out the management companies. company NKSFB and Gelfand Rennert. New York-based Focus Financial, which went public in July 2018, is growing rapidly with annualized revenue of around $ 800 million after the amalgamation of dozens of financial services companies.
“I think the CEOs companies will sell if the price they can get is higher than selling or merging with another CEOs company,” says Bill Tanner, President and Founder of the management company Tanner Mainstain Glynn & Johnson.
Experts believe such acquisitions will persist. “We expect the business management community to continue this trend of consolidation,” said Martha Henderson, head of entertainment for the City National Bank, who works extensively with business leaders. “And of course I would expect it to result [trend] partners who separate and create new businesses. This is nothing new in the entertainment support industries.
Focus Financial declined to comment, but its IPO prospectus indicates that it is prepared to use cash and its publicly traded stocks to buy financial companies from aging partners. Its acquired companies retain individual identities and names, so ownership of Focus Financial is not obvious to the outside world. Thus, Focus Financial functions as a sort of holding company in the same way that financier Warren Buffett grants autonomy and separate names to the operating units of his conglomerate Berkshire Hathaway.
Focus Financial locks in the key executives of the acquired companies, with employment contracts generally lasting six years and additional compensation agreements based on financial performance to incentivize these executives. Although its operational structure is decentralized, Focus Financial notes that there is a centralized “common ledger, payroll and cash management system” through which Focus oversees its businesses.
Hollywood business leaders say acquisitions only make sense if a next generation of executives are in place to replace retirees, and that’s often a challenge. Business leaders in Hollywood say it is difficult to recruit new college graduates. Other areas of finance pay better and offer more regular hours, unlike business leaders, who often have to take action at irregular hours to manage clients’ personal affairs.
Some business leaders are skeptical that bigger will be better. “Managing their money is the most intimate relationship clients have,” says Evan R. Bell, managing partner of management company Bell & Co. “When you turn it into a business, you lose privacy. . “
John McIlwee, partner of Commercial Director Shephard McIlwee Tinglof, echoes that thought. He says Hollywood’s concierge-like business management department “is extremely personal and best run by smaller, low-key businesses.”
Over the past few decades, there have been other consolidation efforts with companies outside the industry purchasing Hollywood management companies.
Early external consolidators include American Express, Assante / Loring Ward, former accounting giant Coopers & Lybrand, JP Morgan, Republic Bank and Wilmington Trust. One attraction was the synergy between obtaining bank deposits, mortgages and other financial activities of clients from their management companies, but some or all of these companies later, for the most part, were resold.
Business management insiders wonder how the landscape could be radically reshaped, indicating the general ledger industry is shrinking at the Big Four, in a Big Eight consolidation. Today, most Hollywood CEO firms have between 15 and 75 employees as independent boutiques or specialty branches within large, diversified accounting firms.
Focus Financial has turned heads because it has taken on the biggest in Hollywood: NKSFB has 375 employees.
David Coronel, partner at Tanner Mainstain Glynn & Johnson, expects wave of mergers to create more CEOs, but adds: “I think there will always be a place for small businesses. independent.