“Cirque du Soleil, The Blue Men, and the Future”

On Thursday, July 6th, Cirque du Soleil announced the acquisition of New-York-based Blue Man Productions, a global live entertainment company best known for the award-winning Blue Man Group show, performed in over 20 countries and seen by more than 35 million people worldwide since 1991. The acquisition of Blue Man Group considerably widens Cirque du Soleil’s audience pool, adding to their portfolio six resident productions established across the United States and Germany, as well as a North American and a World Tour.

According to Reuters, Cirque du Soleil paid US$65.5 million to acquire the Blue Men. The purchase price represents a multiple of 16.5 times Blue Man’s last 12 months’ adjusted Earnings before interest, tax, depreciation and amortization (Ebitda) of around US$4 million, made up mostly of cost savings the circus arts entertainment company expects to realize from the acquisition, the sources said. However, Cirque strips out from the purchase price the value of certain assets including real estate it plans on selling, which brings the multiple down to 10.9 times. On that basis, the implied valuation is around US $44 million. Financing was sourced from a US$85 million add-on to the company’s US$635 million term loan due in July 2022 that was arranged last month by RBC Capital Markets. The incremental loan was upsized from US$65 million initially, with the additional proceeds earmarked for general corporate purposes, according to Moody’s Investors Service. Including the new debt, Cirque is now levered 3.8 times first lien and 4.65 times total, based on US$185 million of combined pro forma last 12 months’ adjusted Ebitda, US$710 million in first lien debt and US$860 million in total debt. That’s up from leverage of 3.5 times first lien and 4.3 times total prior to the purchase, based on around US$181 million of Ebitda, US$625 million in first lien debt and US$775 million in total debt.

But who are the Blue Man Group?

Blue Man Group grew out of collaboration between three close friends, Chris Wink, Matt Goldman, and Phil Stanton, on Manhattan’s Lower East Side in 1988. It originated as a celebration to the end of the 1980s. The three men wore blue masks and led a procession that included the burning of a Rambo doll and a piece of the Berlin Wall. The stunt caught the attention of MTV’s Kurt Loder, who covered the event, and the strange Blue Men gained attention. The Blue Man character emerged from small “disturbances” on the streets of the city, growing into small shows at downtown clubs, eventually becoming a full performance at the Astor Place Theatre in 1991. Today Blue Man Group has continuing theatrical productions in Las Vegas, Orlando, Boston, Chicago, New York City and Berlin. In addition to the stage theatre show, Blue Man Group has toured the globe with multiple national and global tours; been a guest on various TV programs as both characters and performers; appeared on the Norwegian Cruise Line ship, Epic; released multiple studio albums; contributed to a number of film scores; performed with orchestras around the US, and appeared in advertising campaigns. Wink and Stanton have remained as the creative directors of the group, and also occasional performers when the need arises, through the company’s entire history. Goldman, however, split several years ago to pursue other theatrical projects, according to the Las Vegas Review-Journal.

“Today’s a very exciting day for us,” Wink said, announcing the sale. “After 25 years of pursuing our crazy dream, following our own path, trying to push the boundaries of entertainment, we’re taking an exciting step forward by joining forces with Cirque du Soleil!”

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Well before the current deal, Chris Wink, one of the three founders of Blue Man, said the idea to sell came about a fee years ago, as the company was looking to gain a foothold in other parts of the world. “We started to feel like we needed some help, plus we had some creative ideas that were beyond our own means. We thought of some ways that the Blue Men and their performances could go on a bigger scale.” So the Blue Men – with stage productions in North America, Europe, and Asia – began looking for an international partner and more resources to expand worldwide. Wink said that, although Blue Man was already profitable, it was willing to give up its autonomy in favor of more capabilities and resources that it could use to target other markets. “Being just on our own is hindering us from being able to do things that we could imagine or aspire to do,” Wink said. “In this day and age you need to be a global player.”

China specifically came to mind as a possible “new audience” for its mostly non-verbal show, and Wink had even spoken to representatives of Fosun about expanding there. “We knew we didn’t have the expertise to break into the Chinese market, and when we spoke to them they said, ‘You should meet with Cirque because you two are similar but different.’ And when we did finally meet, in Montreal, we hit it off immediately. After all, we at Blue Man sort of re-imagined vaudeville while Cirque re-imagined the circus. And we both achieved a lot given our humble street origins. We also are now both restless and wondering: What’s next?”

It just so happened that for a company looking to find a permanent home in an entertainment pillar like China (and other large markets), Cirque was a fit. “We had tried get something started in Brazil, but could never quite make it work,” said Wink. “But TPG has incredible digital sales and ticketing skills, and it owns CAA [the Hollywood-based talent and sports agency]. And Cirque has a phenomenal touring network and creative team, and is able to get to search for talent in places in the world we just can’t get to. We realized that being autonomous was sort of limiting us at this point, but that we could do great things together.”

The two companies have often been compared to each other, in its artistic development and business evolution. Cirque grew from the street performances of co-founders Guy Laliberte and Gilles Ste-Croix in the Quebec city of Baie-Saint-Paul in 1984. Blue Man Group’s first public performance was in 1988 in New York’s Central Park, where founders Stanton, Wink and Matt Goldman staged a “Funeral for the Eighties” act. “We feel Cirque du Soleil is the perfect partner for Blue Man Group,” Stanton said. “We have a similar history. We both, in our own way, started on the street. We have similar values we have been trying to reinvent, in our own ways over the years.”

Daniel Lamarre, Cirque du Soleil’s CEO, talked of “the great deal of respect” Cirque has had for BMG over the years at the announcement. “We found that they wanted, as we do at Cirque du Soleil, to do things differently.”

But for those who are worried that Cirque du Soleil is going to re-brand Blue Man Group and/or Blue Man Group will show up in upcoming Cirque shows, don’t worry. “Blue Man group will remain the brand that it is.” Added Wink, “We’re really looking forward to putting our teams together and seeing what kind of amazing things we can create.”

Cirque du Soleil will keep Blue Man as a separate brand and help it grow by leveraging Cirque du Soleil’s touring capabilities, the Canadian company said. “We are going to keep Blue Man Group as the Blue Man Group,” Lamarre said. “It will not be, ‘Blue Man Group by Cirque du Soleil.’ It is important for us to keep that brand as it has been, and keeping the chemistry of its same group of creative partners. We want to grow Blue Man group by itself just as we want to grow Cirque du Soleil. But each creative team will be autonomous.”

“From the very beginning, it wasn’t about blurring the successful brand and changing who Blue Man is,” Wink said. “The creative teams behind the shows will cross-pollinate and take advantage of their creativity and the know-how, but on stage we will keep the DNA intact.”

“I’m very excited about the reaction of the industry,” Lamarre said of the deal. “It’s almost as if Blue Man group has crystallized the strategy of Cirque, and now everyone understands where we are going, and it makes a lot of sense.”

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The acquisition of New York-based Blue Man Productions is the first step in Cirque’s plan to diversify its productions and expand globally.

“Our primary goal is diversification,” said Daniel Lamarre. “We want to broaden our horizons, develop new forms of entertainment, reach out to new audiences and expand our own creative capabilities.” Lamarre said this was Cirque taking a decisive step towards materializing those ambitions, a breakthrough to make it clear that Cirque is going from a circus company to becoming a global leader of entertainment.

“People recognize Cirque’s brand and how unique of an art form it is,” says David Trujillo, a TPG partner and member of Cirque’s board. “But they tend to overlook the capabilities that they have in things like being able to tour globally and deal with visa issues and promoter relationships. There’s a real know-how there that not a lot of companies have.” TPG’s strategy is to turn Cirque into more of a platform play—utilizing the company’s global infrastructure to take more and more shows to different countries at a faster pace.

“We have just pressed on the accelerator of growth for the coming years.” (It is just the first deal being contemplated. Cirque du Soleil and TPG have compiled a list of additional acquisition targets to add to the entertainment portfolio, two people with knowledge of the matter said.)

Currently Cirque du Soleil shows account for 80 percent to 85 percent of the company’s revenue, with the rest coming from merchandising and other sources. In the future, Lamarre said he wants to bring that number down to 70 percent by continuing to expand and diversify. The company’s portfolio will grow again in November through a partnership with the National Football League. The NFL Experience Times Square will remain separate from the Cirque du Soleil brand, similar to the Blue Man Group.

“We are acquiring the Blue Man brand because it is a type of show that is very different from us, and at the same time has great complementarity. We both began decades ago, and grew out of street performances. And now, with a whole new set of resources, we can expand geographically. And we can introduce both our brands to new markets without changing the character of either brand, yet when possible sharing creative talent.”

Lamarre is particularly intent on developing the Chinese market for both shows, and plans are already underway to create a huge, Las Vegas-scale permanent Cirque operation in Hangzhou, the fabled city renowned for its gardens and waterways and sometimes dubbed “the Venice of the East.” He also has his eye on Europe, because Cirque has yet to have a permanent show there. “With ‘Blue Man’ we now have a smaller, less labor-intensive show [three actors and three musicians] that can open up audiences for us in many places,” said Lamarre. “It currently has permanent productions in New York, Chicago, Boston, Orlando, Las Vegas and Berlin, but we hope to be able to take it to many of the countries where we currently perform and they have never been.”

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“Our strategy for the future is very, very clear,” Lamarre said, noting that both brands have an extremely loyal fan base, but also have been around long enough so that there is a whole new audience to tap for each. “We want to become a leader, a global leader of live entertainment. And our goal of experimenting with new forms of immersive entertainment is already taking shape.”

In November, through a partnership with the National Football League, Cirque will open “The NFL Experience” in Times Square. As Lamarre describes it: “It will be a whole new world of live and virtual sports entertainment — an experience that will last about an hour, with audiences starting out as fans, becoming players and finally celebrating as Super Bowl winners.” And next fall, the company famous for its acrobats, contortionists, quirky clowns, surreal visual landscapes and experimental music also plans to enter the world of ice shows with a production created in Canada and then sent out on tour.

{ SOURCES: Washington Post, Financial Post, The Australian, the Boston Globe, the San Francisco Chronicle, Bloomberg, the Las Vegas Review-Journal, the Chicago Sun-Times, Fortune Magazine, CNBC, the Montreal Gazette, Business Insider, and Reuters }