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Tampa business' niche: dealmaking

Communications Equity Associates has brokered hundreds of fee-generating transactions in the buying and selling of media properties, from cable TV systems to dot-com start-ups.

[Times photo: Fraser Hale]
Nearly 30 years ago, J. Patrick "Rick" Michaels started Communications Equity Associates with $2,000 and a Rolodex of names.

By KRIS HUNDLEY, Times Staff Writer
© St. Petersburg Times
published February 24, 2002


TAMPA -- If you've ever wondered why Pat Robertson's The 700 Club appears twice daily on a cable channel owned by past enemy Disney Co., ask media broker J. Patrick "Rick" Michaels, chief executive of Communications Equity Associates in Tampa.

It all goes back to a deal sketched out on a napkin in 1989 by Michaels, Robertson and media mogul John Malone. The deal guaranteed that Robertson's daily program of news and religious commentary would always have a place on what was at the time Robertson's Christian Broadcasting Network cable channel, regardless of who owned it.

Twelve years, millions of dollars and two changes of ownership later, Robertson appears on Disney's ABC Family Channel every weekday at 10 a.m. and 11 p.m. even though Robertson in the past denounced Disney World for its sponsorship of "Gay Days."

"I actually ended up with that napkin," said Tom Cardy, who has worked with Michaels for 14 years and is Communications Equity Associates' managing director. "Anybody can be lucky in this business once. But to have repeat business, you have to create value, like Rick did with CBN."

Nearly 30 years ago, Michaels started his company in Tampa with $2,000 and a Rolodex of names. The contacts in the Rolodex were more valuable than the cash.

Today CEA has 200 employees, 18 offices worldwide and a data base of 10,000 industry contacts. Those connections have resulted in hundreds of fee-generating transactions in the buying and selling of media properties, from cable TV systems to dot-com start-ups.

Though Cardy said the company targets midsize deals of $50-million to $150-million, CEA banks on small guys getting big. Which is how the company got involved with a guy named Ted Leonsis. In the domino effect that often characterizes such deals, Leonsis had an investment in Preview Media, which eventually became Preview Travel, which merged with Travelocity in 1999, earning CEA a 43 percent return.

Of course, CEA doesn't catch every wave. Cardy said CEA's executives "couldn't understand" another Leonsis venture, Redgate Communications Corp., and passed on investing in it. So they missed out when Redgate merged with America Online, making Leonsis a millionaire many times over.

In 2000, CEA did $9.3-billion in deals, from advising Deutsche Telekom on its purchase of the phone system in Slovakia to helping the chain that includes Tampa's Weekly Planet in its buyout of family interests.

"They know everybody in the very small world of media deals and they are extremely smart," said Ben Eason, Weekly Planet's president and chief executive. "And they can plug you right into this world of high-end finance."

Last year, CEA's deal volume dropped precipitously to $3.3-billion, but Michaels takes it in stride.

"It was the worst year in our history," he said. "The sad news is that we're not alone: Everybody took it in the chin, especially in our sector."

The company, which earns a fee on deals, does not release revenue figures.

CEA has several lines of business: representing buyers or sellers in cable, TV, telecom, radio, outdoor advertising and entertainment deals and investing institutional money, as well as its own, in the same sectors. "We just pass the hat around the office," Michaels said of CEA's internal financing deals, which result in multimillion-dollar infusions for lucky start-ups.

The company manages nine private equity funds totaling $800-million. Though the funds took a hit in the past few years, writing off a few unfortunate dot-com fliers, Michaels said the overall rate of return is still 30 percent. He's in the process of raising another fund with $350-million from an affiliate of a large insurance company.

Because relationships are critical to deal flow, Michaels travels 250 days a year to cement existing ties and forge new ones.

On one recent Friday, he was in his office on the 33rd floor of the Bank of America building for a quick stop. He had flown in late the previous night from Munich and had to leave early to make a dinner with Gov. Jeb Bush. A big portrait of Michaels with President Bush and his wife, Laura, graced a nearby coffee table.

Despite his involvement in high-tech media deals, Michaels carries no laptop or Palm organizer when he travels. Upon his return from Bombay or Boston, he simply hands a stack of microcassettes and business cards to four assistants who churn through the dictated correspondence and give him hard copies of e-mails for reply.

At 59, Michaels is a man in a hurry, seldom finishing a sentence, ricocheting from one topic to the next. As if trying to keep pace with the media/telecom/entertainment world isn't enough, Michaels has started a separate company, Communications Development Corp., that does strategic consulting in the Middle East.

"We had a man in Saudi Arabia on Sept. 11 but luckily he had a Danish passport and he just kept on working," Michaels said. "But that's a story for another day."

Aside from the Persian Gulf region, the rest of the world is CEA's territory, with offices managed by local staff. In the past year, they've worked with a start-up broadband company in the British Isles, a cable business in Central America and a Belgian telecommunications operator.

And Michaels sees business picking up.

"An ebb tide hurts us, but now we've got a low tide and the bottom feeders are coming out," he said. "Banks and funds are still leary, but for well-capitalized buyers and knowledgeable entrepreneurs, it's a great time to buy."

He has good reason for optimism. With Republicans in charge, Michaels expects restrictions preventing companies from owning a television station and newspaper in the same market to be abolished, setting off a slew of deals. (Media General's ownership of the Tampa Tribune and Channel 8 in Tampa is allowed under a grandfather clause.)

Michaels, who gave more than $110,000 to the Republican Party last year, calls the current restriction "an antiquated idea." He's so certain a change is imminent that CEA recently hired a staffer with ties to the newspaper industry.

Another change sure to keep CEA busy was last week's ruling by a federal appeals court allowing a single company to own both a cable TV system and a local broadcaster in the same market.

After playing a role in much of the cable TV industry's consolidation in the past decade, Michaels expects the big guys to shed small, rural systems that are too much trouble to run.

"What do they care about service in Citrus County, Florida?" asked Michaels, who once owned and operated cable systems in Pasco and north Pinellas counties. "It creates opportunity for local management who can deliver good service."

Michaels predicts further consolidation in the magazine business, with plenty of failures of titles that can't find buyers. His experience in the theater business -- CEA lost about $750,000 in Consolidated Theaters when that chain merged with another in the late 1980s -- convinces him that more movie theaters will close soon.

He expects more failures among telecommunications companies, saddled with too much fiber in the ground and not enough consumer demand. And though CEA's funds lost money on a few Web ventures that crashed and burned -- among them was BeautyJungle.com, a cosmetics site started by Michaels' assistant -- CEA hasn't blacklisted the Internet. One area of particular interest: companies that provide online services to federal and state government agencies.

Cardy, who handles CEA's entertainment business, said while all deals are different, some elements are the same.

"You've got to be part psychologist, part conductor and part movie director," he said. "It's all in how you orchestrate the elements and get the parties' trust and respect."

David Beddow worked with CEA as he was building Liberty Livewire, a film postproduction company in Santa Monica, Calif., in 1999 and 2000. A former executive with Malone's Liberty Media and TCI, Beddow said CEA advised him on a few of his 11 acquisitions and represented the sellers on other occasions.

"This is a relatively small community of people, and you're going to meet people on both sides of the table sooner or later," Beddow said. "We felt very comfortable with them."

Beddow retired from Liberty Livewire in April, but he's now working with CEA to re-enter the business through acquisitions. "The kinds of deals I'm trying to do are the ideal size for CEA," he said. "And I get a lot of personal attention from them I wouldn't necessarily get from bigger companies like Goldman Sachs."

Robert Rudelius turned to CEA in mid-2000 when his business in Minneapolis, which provided servers to TV stations and networks to receive digitally encoded commercials, was caught in a cash crunch.

Rudelius said Cardy found a buyer for Media DVX and helped put together its sale to StarNet LP in May 2001. Rudelius has nothing but praise for Cardy and CEA, even though he lost $1-million on the deal.

"I could have suffered far greater financial loss without Tom's help," said Rudelius, who left the company after the sale. "Had CEA not been involved, it could have been a disaster."

Pat Robertson still remembers how Rick Michaels introduced him to John Malone over a dinner in Washington in mid-1989. By the time dinner was over, Malone had invested $45-million in Robertson's cable channel, which was being spun off from his church-owned Christian Broadcasting Network, and worked out a deal to carry the channel on his TCI cable system.

"Rick brought John Malone into the mix," Robertson said last week. "And the channel went on to be enormously successful."

Nor, by the way, is Robertson the least bit uncomfortable appearing on Disney's Family Channel. "The past is past," he said. "Michael Eisner and I are getting to be real buddies and I don't want to complain. And I understand my ratings at night are up 183 percent."

-- Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

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