NFL Opens Doors to Private Equity

Welcome back to The Deal Room and welcome back to Big Deals, because it feels like it's been a lifetime since we have not done our original remit, was to talk about some of the biggest deals happening in the world of corporate finance. And there's no better time than now because I know that application season is in full swing. So Stephen and I are going to talk a little bit about Mars Bars. A little bit about the NFL, some private equity, and perhaps a little right move action in there as well. But Stephen, how are you?

Yeah, pretty good, thank you, Ant. We're just coming, we're just coming to the end of our final summer analyst training program of the summer. So this is the last day of 9 weeks cumulatively of training where we've seen hundreds and hundreds of students battle the buy side, the sell side, and in the third week, the banking week. So they are currently doing an initial public offering simulation to kind of round off the week. But I just wanted to do a couple of shoutouts, not only to this cohort who have been absolutely fantastic, and I, I've promoted this podcast almost every day, so I hope they're listening, but also to the winners of our 24-hour M&A challenge. So Alec and Zane, who have been top performers throughout the whole week, shoutout to you guys. You've, uh, you've helped other people during the course of the week, and you perform fantastically, and there's some brilliant pitch decks to see. So yeah, it's, uh, it feels like the end of, uh, the end of summer.

Yeah. And then were you part of that, the big event that we ran for the, the women in, women in markets? That was awesome.

Yes, thanks for reminding me. So Wednesday we did this amazing event, got over 200 undergraduates and graduate female students, did a kind of round the tables with 7 or 8 of the biggest the biggest financial institutions in the world, you know, the who's who of finance, and they basically sold their wares to our 200 students. I just want to do one more shout out. This is not going to be a podcast full of shout outs, but one more shout out to Linda Wu, who, who was great during the events, and she listens to our podcast before she goes to the dentist, on the, on the subway in Hong Kong, a bit of a legend.

Nice. And actually, stay tuned because I've got a special episode with a trader in Hong Kong who works for a quant firm who's going to be coming up on an episode very soon. So stay tuned. But look, let's get into it and let's talk about our first deal, which is Mars.

Yeah, so this is— well, I'm going to say it's an oldie but a goodie, but that just means it was announced on the 14th of August. Things move pretty fast. That's less than a month ago, but it feels like it's been news for quite a long time. This is Mars. Mars acquiring Kellanova. Now, Kellanova is a spin-off. This is a $36 billion transaction. This is why it matters. Kellanova is a— it has been spun out from the Kellogg Group, got spun out in 2023. And if you're a fan of snacks, this is where you want to be working. So Pringles— you're a fan of Pringles, Ant?

Do you know what, I am One of the biggest UK fans of Pringles, I would say. Pringles and hummus, if I'm going to be completely transparent with you.

What flavor do you like?

It's got to be just— I'm just straight up, just a plain red pack.

You know what, I like Pringles too, but when you actually think about what they are, kind of deconstructed, reconstituted potato mush in a disc-like form, does that not turn you off?

Why have you got to do that on a Friday? Why would you do that ahead of my weekend where tonight I'm gonna— yeah, I'm gonna absolutely smash a box of Pringles. Why would you do that?

So this is really interesting. And it's interesting for a few reasons. Mars is such a fascinating company. So it's a big old-school company founded in the 19th century, actually founded as Wrigley's, and Wrigley spun off. So the chewing gum, the chewing gum brand. But Mars is a private company. And this is why it's interesting. So we don't actually know that much about the Mars Group, apart from the fact that we know that it produces Mars bars and Snickers and M&Ms and all of the good stuff. So it making such a big corporate move at a time strategically when there is all of this hype around GLP-1 weight loss drugs. And is that going to spell the end for appetites for snacking and things like that? This is a big acquisition, $36 billion representing $83.50 per share. For Kellanova, and it's basically uniting two of the biggest consumer durable— consumer durable snacking brands together. And yeah, we'll see what happens.

Well, hold on, you just said two of the biggest brands. Surely that can't happen.

Well, this is it. I mean, this is one of the reasons why it's interesting. We'll talk about the strategy first, and then we'll talk about the potential for antitrust. So this is— it's a really interesting way that the CEO of Mars has presented this acquisition. So often acquisitions are presented by CEOs as extremely exciting, high growth, massive positive synergies, here we go, this is a great technology, etc., etc. The way that the Mars CEO Paul Weirauk is talking about it is it's actually more of a defensive move. So, what he's saying is bigger is better when it comes to facing things like inflation, supply chain issues, and supply chain inflation, and also distribution. So, he said, let's just get a quote up. It is our job as a business to try and absorb as much of these input costs as possible and put on as little as required to consumers. We believe that coming together will make us stronger in absorbing these, these shocks. So this is a defensive acquisition to benefit from the types of economies of scale— economies of scale being things get cheaper as you get bigger on a unit cost basis. But you're kind of— it's a kind of economy, it's a risk economies of scale. So distributing your risk across a lot of different product lines. So if one is facing supply chain disruption or input cost inflation. Think about Mars and the price of cocoa. Then you've got other areas to fall back on. You're also benefiting from distribution economies of scale. So, you know, instead of your Mars van pulling up to a Tesco's, well, you've got your bigger Mars lorry pulling up with all your Mars stuff and all of your Kellanova stuff. And then also you've got the production, production economies of scale. Can those manufacturing bases do more than one thing at any one particular time? So it's a really interesting case study. Of not the most exciting acquisition. You know, Kellanova hasn't really grown. I'm looking at its revenue over the last 3 or 4 years, and it's, it's grown from $11.7 billion annual revenue to $12.8. Not bad, but it's not, it's not the Nvidia lights-out earnings that and revenue that we've been used to talking about. But your question, is it going to face antitrust? And this, this is really interesting. So The headline from the teams at Kellanova and the teams at Mars is, "Ah, this is complementary." If you think about going down a delicious snack aisle at your local superstore, and on your left-hand side you've got your confectionery, your chocolate, and on your right-hand side you've got your snacks, your Pringles, your Cheez-Its, they're complementary. You know, you're not building up a monopoly in a particular area within the snacking section. It's not like Mars buying Nestlé. That really would be antitrust red flags, red sirens. However, Lina Khan, our favorite head of the FTC, she wrote a paper back in 2023 that talked about the chocolate oligopoly. Oligopoly meaning there are only 2 or 3 players that are dominating the market. And she wrote this paper before she got in a position of power, talking about the undue influence of Hershey's, Mars, and Nestlé in the US. So she knows a thing or two about this industry. And although maybe there's complementarity in terms of two different sides of the aisle, she's still, I think, going to go after it because it's a $36 billion transaction in a wider industry space that you can say, you know, if I'm looking to treat myself, if I'm looking for snack, Well, maybe I'll buy a Mars bar one side and I'll buy a tub of Pringles the other. Or if you're me on a Friday afternoon, you buy both.

Oh, now we're talking.

Now we're talking.

So what do you think then overall? You think this will get through then?

I think it'll get through. Yep. I do take on— I do believe that there is enough complementarity and not enough overlap. If you think about Mars as a company, it's a $50 billion annual revenue company. And that's not just snack food, uh, that's not just candy, that's pet food as well. So it's actually a bigger part of its business. Huge, huge pet food company. So there's enough stuff going on within this conglomerate that you might be able to see Mars now as a pet food, candy, and snacking company. And I don't see how that is going to be anti-competitive. When we talk about anti-competitive, you think about two things. Does that company have a position where it can raise prices to the detriment of the consumer because the consumer has no other choice? And secondly, does it limit the number of choices available on the shelf for the consumer so you can only go with Mars or a Mars Duo or a Snickers? And I don't think that this acquisition does either of those things. So here we go, I think they're gonna, they're gonna combine and you're looking at a new meal deal. Pringles, Mars Bar, Snickers. Delicious.

Just putting this back to the context of the application run at the moment, I'm assuming a deal of this magnitude, size, has a lot of people working on it. And what sector coverage team would deal with this sort of transaction?

Yeah, this will be, this will be consumer durables. This will be the consumer durables team, often depending on how big the M&A coverage teams are, this could come under just general retail, could come under just general consumer, but the kind of subcategory is consumer durables. And that's the likes of Unilever and Nestlé, the kind of big beasts of your products that you will find in a supermarket.

Okay, cool. Well, look, let's move over and talk a little bit sports. And we do talk a lot of sports and private equity, but Which sport are we talking about now then?

So this is the NFL. So we spoke about the NFL about maybe 10 months ago, and we subsequently spoken about the interaction and the relationship between investments and sports teams across the world. We've done a decent amount on basketball, we've done a decent amount on football, and what we've kind of discussed is to what extent is the door being opened by these big organizations, by the NFL, by the NBA, by the Premier League? To what extent is the door being opened to different sources of capital? And the NFL, which is, by the way, the most lucrative, highest revenue-generating sports— sport in the US by some distance, ahead of the NBA and baseball and things like that, The NFL has been the last bastion of, we're only going to keep— we're only going to allow owners to be— to run the team. We're not going to allow any private equity interest. This is 32 different franchises run by 32 individual owners who are sitting literally around the table deciding on the decisions of the NFL. And it was like a little bit of a kind of old boys club. An extremely rich old boys' club, 32 owners of these places go around. But the news that was announced about 10 days ago was that the NFL is now allowing minority private equity interest from a range of preferred private equity firms. Now, this is super interesting because it's the last organization to do it, and the structure is very interesting. So 31 of the 32 NFL owners agreed to this structure. The Bengals were the only dissenter. And this new structure allows the likes of Ares, Arctos, Sixth Street, and a Blackstone-Carlyle CVC consortium to invest up to 10%, to own up to 10% of an NFL franchise. But no votes, no seat at the table. It's a passive minority stake. And they are— they need to invest at least $2 billion in the league, each of these preferred partners, and they need to hold their investment for at least 6 years. So it's basically private equity has been banging on the door of the NFL for years and years and years. Because what does private equity love? Really, really solid revenue streams, and if you've got a 10-year, multi-billion-dollar TV media rights deal in place, it's pretty attractive. The NFL has basically named their terms. You can come in, but it's 10%, million, you know, $2 billion minimum, you've got to hold for 6 years, and you're not going to have any say on the board. So it's a really fascinating structure and interaction between the NFL and the private equity firms.

I don't know why I had this like vision in my mind as you're describing that of like the head honchos of Sixth Street, Blackstone, Carlyle in a dark corner of an Italian restaurant in New York going, right, we're going to do this NFL thing. Let's all agree on our terms here. I mean, how, how does that work when you have all of these big players? It's an absolutely brand new market which they're entering. It's all almost the same terms. How much dialogue is there, do you think, amongst the PE firms? Because they've all got to agree to this, right?

Yeah, so there were— there are players, there were private equity firms that have, that have put their name forward, and I'm sure that this was a competitive process. So as I said, that there, there are 6 preferred private equity groups. As I said, some of them are consortiums of private equity firms, so it gets a little bit complicated. But there would have been a competitive process where the NFL would have said, as part of this pilot, we are allowing for up to $12 billion to be invested by 6 different private equity firms. You have to show us that you are the best custodians, the best private equity firms to own slices of these precious franchises. So Ares got in, well, it owns Inter Miami and owns Chelsea. Arktos owns the Golden State Warriors. Sixth Street owns San Antonio Spurs and a portion of Real Madrid. Dynasty owns a minority stake in Liverpool. So they've already proven their credentials as custodians of other famous brand names. And I think that was probably part of the competitive process. By the way, this will get opened up if it's successful. That number of 6 chosen partners will expand, and that minute— that investment cap of $12 billion across the SIP6 will also expand.

I'm gonna say it, Stephen. It's the beginning of the end for this sport.

Well, there was a brilliant Liquidity— if you follow Liquidity— Instagram post that had a picture of a, I think it was Miami Dolphins NFL player with logos superimposed, brand logos superimposed on every inch of his body, saying this is what it's going to look like post-private equity. So you might be right, and actually the The website Front Office Sport led with the headline in response to this announcement: 'The NFL led the private equity barbarians through the gate.' So they weren't particularly happy with this opening of the door to firms that are pretty sharp-elbowed, let's be honest about it.

Yeah, all right, well, let's move on. Two more, two more to go. And this one, again, these, these are just big deals, aren't they, that are going on at the moment? So tell me a little bit about this, this Blackstone one.

This is an absolute whopper, and it's definitely one that need— that you can, as a, as a, as an applicant who's coming into an interview and the director or the HR manager says, or whoever it might be, says, tell me about an interesting deal, this is a really good one. The Mars one is a really good one, but Blackstone to buy Airtrunk for Aussie dollars $24 billion, which I think is about $16 billion US dollars. So this is a really massive acquisition for a private equity firm. We know that Blackstone is the biggest private equity firm in the world, but what's really interesting about this acquisition is that Blackstone, by acquiring Airtel, which is a data center operator, it's got data centers in Australia, Singapore, Hong Kong, Japan, and Malaysia. So it's basically providing these kind of picks and shovels, as we've spoken about previously. It is providing the infrastructure on which the new economy is going to grow. Think about private equity strategy, and this is not just Blackstone. A lot of private equity players are getting into this space. They are much more interested. They want to be exposed to AI and the next generation of technology, but they're not gonna take venture capital style bets, and they're not gonna be happy with NVIDIA style valuations. Operations. So where do they go? They go to the infrastructure plays, they go to the data centers, they go to the cloud computers, they go to the cooling systems that cool the data centers, because that's where private equity firms really like to play. Solid cash flows, repeatable revenue. And this is just another example of Blackstone's strategy. It wants to be the big— the leading digital infrastructure investor in the world. It's already got a $55 billion portfolio of data centers and others under construction. So this is really interesting, just thinking about, all right, what is the stock and trade? What is really good fodder for a private equity firm? And they're willing to pay a lot. Just before we move on, this is crazy. And, and, you know, I know you're very happy at Amplify, but if you want to get into a new business area, this company, Airtrunk, It was only founded in 2016, 8 years ago, founded by a guy called Robin Kuder, who's still the CEO. It was founded in 2016. It was bought, a majority stake was bought by Macquarie, the Australian bank's infrastructure arm, in 2020, valued at Aussie $3 billion. So it is now being sold 4 years later for Aussie $24 billion. Tell you what, the Macquarie infrastructure guys are probably having a pretty big party right now. 4 years, 8 times money on money. Obviously we don't know how much equity was put in and things like that, but it is a— that's a whopper, isn't it?

It's interesting because Macquarie is a name that's very big in certain niches, right? And it's probably one that a lot of students don't think of straight away, given they don't sit within that bulge bracket group.

Yeah, it's big. I mean, infrastructure, real estate, commodities, I believe. I don't— you might be better placed to, to answer that. So yes, certain areas— Macquarie's a— Macquarie is a world-leading, super innovative, forward-thinking, extremely sophisticated bank. But because it's Australian and because it's not quote-unquote bulge bracket, it doesn't do everything at the, you know, on the top 10 of the global leaderboards, then it does get sometimes a little bit missed by, by students. But it's, yeah, it's a really, really great firm, and obviously they've done extremely well with this acquisition in 2020 for $3 billion and sale in 2024 for $24 billion.

Yeah, I was just having a quick look at the Dealogic investment banking scorecard to look at the geographies of how M&A is performing. I'm assuming because the, the transaction hasn't closed, so there's numbers to be added. But Australia— Australasia is up 31% this year as a region. To give you a bit of context, in the East Asia ex-Japan is down 13%.

Interesting.

Japan's down 25%. Europe as a comparable is up 25%. So again, Australasia pre this deal is up 31%.

So why do we think— why do we think— do you say Japan was down 25%?

Yes.

So why do we think Japan is down 25%? You kind of cross the rubicon between markets and dealmaking, and obviously Japan's been in the news a lot for interest rates, interest rate hikes, and things like that. Do you have a view?

Yeah, it's a very good question. I'm sure there's lots of things that I'll miss. Yeah, I mean, the shakeout that we had with the big localized move in Japanese assets on the unwind of the yen carry trade is probably not helpful at all as far as confidence is concerned in, in Japan. But I guess a lot of this would have predated that. Yeah, it's surprising actually, because you would have thought a lot of question marks on China tends to be the consistent narrative at the moment, the slowdown happening there and the various risks that presents that market. So Asia only being down 13%, but Asia, Asia is a big place. I'd probably want to see a bit of a breakdown of the individual countries ex-China. It'd be an interesting figure to see ex-Japan, ex-China and see what that also looks like. But yeah.

It's super interesting. We, I always, I always say when I'm teaching this stuff, especially with regards to private equity and M&A deal volume and value, if you ask, if you answer the question by just saying interest rates and just keep your mouth shut after that, it usually, it usually works out to be the right answer, even if there's a couple of of analytical leaps that you have to make to go from an increase in interest rates to a decrease in deal volume and value. But, uh, but that might be another cause as well. Cool.

All right, well, look, last one then is Rightmove. What can you tell me about Rightmove?

Look, I, I know that our audience trends quite a lot younger than me, and maybe Rightmove is not their favorite website in the world, but it is my favorite website in the world. And I love it. I'm a power user of Rightmove. I don't think I'm— well, maybe I am their most valuable user. I spend a lot of time just searching houses. I have no intention of buying them, and that's maybe where I fall off a cliff in terms of being a power user. But I'm on Rightmove just thinking, "Oof, what could you get for a million quid up in Scotland? I'm gonna live up in Scotland for a bit." So I kind of use it as my main social— I don't call it social media, but it's pretty close for me. I do a lot of scrolling. But anyway, Rightmove. So it's the biggest real estate or property aggregator website in the UK by quite some way. And the story that just broke very recently— and again, this is another Aussie story, I wanted to raise it for the Aussie link and because it's one of my favorite websites— so the REA Group, which runs property websites in Australia, it runs property websites in India, property websites in Malaysia. So again, a big APAC player and much bigger than Rightmove from a market capitalization perspective. Significant investment by the Murdoch family. So this has also got a Rupert Murdoch spin on it as well. They have made an unsolicited takeover interest, or kind of, they have said that they would be interested in buying the company publicly. Now, this is not a formal offer. This is just them coming out and going, hmm, we really like the look of Rightmove and would be really interested in buying Rightmove. Okay, now, because they're a public company, because Rightmove's a public company, according to the UK Takeover Code, which kind of governs all of the regulations and guidance around takeovers in the UK. Because they have expressed an interest in acquiring a publicly listed UK company, they have 30 days from that announcement of interest to either make a formal offer or make a decision one way or, or pull out or say, nope, actually we didn't, we didn't actually really like the look of it. So it's really interesting to see a little bit more of the deal mechanics where REA's kind of put their first foot forward and said, look, we're quite interested in this, in this company. Now that's triggered 30 days of probably pretty frantic work from the REA bankers and also from the Rightmove bankers as well to try and understand where, where the valuation might lie, where the acquisition price might lie, and start to have some of these conversations to see whether it's even on the table beyond just a speculative offer. Interestingly enough, the London-listed company Rightmove jumped 27% on the speculation, as a company tends to do when it's the subject of takeover talk, and REA fell 5.3%. Now, that's— again, this is really, really standard. But the shareholders of REA, I think, are quite concerned that this is not going to represent the best value for money. They want dividends, they want share repurchases. They don't really want a big acquisition of a UK-based company, which REA hasn't had a great deal of success integrating big acquisitions in the past. So this is a story again that's going to rumble on. You know, it's quite a big deal. It's going to be £6, £7 billion, something like that. This is gonna— this is gonna be a story that rumbles on, and I'm really interested in seeing— again, the timer has been set, the takeover code is mandated that you've got until the 30th of September to do— to make a decision one way or another. And we'll cover this story in future weeks and see how it goes.

So could you replay the, uh, interest rate answer as well, playing part of the strategic side of the timing of this, looking to get ahead of lowering interest rates in the UK and so on?

Yeah, so Rightmove is a company that again is very, very subject to interest rate rises and falls. So interest rates over the last few years have been rising relatively steadily and then, and then steadying in the UK. And obviously what we talk about as individuals as opposed to financial analysts is, all right, what's happening to my mortgage? And if a mortgage— and if mortgage rates are going up in line with interest rates, then the number of houses being bought and sold is going to start slowing because we no longer can borrow as much for as cheaply as we used to be able to. So suddenly houses that look quite attractive don't look so attractive from a valuation perspective if we're going down that route. But now the Bank of England has signaled the end of the hikes and the beginning of the cuts. I don't think they're going to be particularly fast cuts, but there's now a degree of stability and some forward-looking certainty that rates are not going to go higher, and if anything, they're going to go down, which presents a much more favorable housing market. Demand is going to start coming up as mortgage rates start going down, and as demand starts coming up, where are they going to be spending an hour a day? They're going to be spending time on Rightmove. They're going to be joining me looking at million-pound baronial houses in, in Scotland.

All right, good stuff. And finally, I don't think we mentioned on that deal— is it, am I right, is it MS and UBS?

Yes, MS and UBS are working for Rightmove, I believe. Okay, I think so.

Cool. All right, well, look, we'll wrap it up there. I'd just like to congratulate you, Stephen. You said to me just before we clicked the record button you were going to aim for 30 minutes, and you've hit the mark. You're about 5 seconds too fast, if I was going to be—

We've got about 30 seconds to spare. Yeah, no, look, I've got plenty more to say, but I respect the listener's time, so we'll keep it below 30 minutes.

All right, great stuff. Thanks, Stephen, and catch you next time.

Thank you, Ant.