Comcast’s creation

A decade ago large listed corporations were worried whether private equity firms’ governance model and access to long-term capital would undermine them.

The natural response has been the greatest form of flattery: copy their approach.

US corporations have increasingly moved from corporate venturing, including taking minority equity stakes in third-party private entrepreneurs, to also exploring and investing larger amounts in later-stage companies.

The latest addition, Comcast, has committed $4bn over 10 years to a new investment firm being set up by the US cable operator’s current chief financial officer (CFO), Michael Angelakis.

Angelakis will step down from his current position either when Comcast hires a new CFO or on 30 June, 2016, if one has yet to be found by then, but he will remain a senior adviser to Comcast, which is trying to merge with Time Warner in a $45bn deal currently undergoing a government review.

News provider Wall Street Journal ranked him the third-best CFO in the US in December after its acquisition of NBCUniversal for $30bn that finally closed in 2013. 

As well as Comcast’s $4bn commitment, Angelakis is investing $40m in his new firm and the remaining money – $60m – coming from senior team members who are yet to be appointed.

Angelakis made $17.55m in 2013 as CFO after joining Comcast in 2007 after eight years as managing director at private equity firm Providence Equity Partners.  

Angelakis, 50, will own a majority of the votes of his new firm and between 20% and 40% of its economic interest over the first five years, according to a report on the Nasdaq stock exchange.

The new group will begin operations either this year or by early 2016 with Comcast having rights to be exclusive limited partner for at least 10 years. Angelakis’ firm is separate to Comcast’s $500m corporate venturing unit, Comcast Ventures, run by Amy Banse, which focuses on the US earlier-stage deals.

The new unit would invest larger sums in US and international companies but not exceed $1bn per deal.

The structure similar but different to how peers have developed their quasi-private equity operations.  

Chip maker Intel and search engine provider Google through their wholly-owned Intel Capital and Google Capital investment units have taken large stakes in public and private companies, such as ASML and Surveymonkey, respectively.  

As our coverage of Google Capital’s pre-launch plans in 2013 indicated, Google wanted to find opportunities larger than its Google Ventures unit would normally consider and also deliver strong financial returns but where it had no acquisition plans by the parent business.

Other corporations, including healthcare provider Merck and consumer goods maker Unilever, have also been exploring how to tap the private equity model through rolling-up venture deals to a larger size or committing to third-party funds, respectively.   

Liberty Global has been an interesting example of a Nasdaq-listed company creatively buying and selling media assets in Europe while also running Liberty Global Ventures as an active corporate venturing unit.  

But as a $145bn company, Comcast’s move to back Angelakis gives it a route to invest sizeable amounts through a trusted and successful intermediary.

However, Intel Capital and Google Capital’s angles come through seeing the technology trends and offering to help these portfolio companies develop. Comcast has remained primarily US-centric and as the industry goes through a process of cord-cutting by some consumers it is unclear whetherAngelakis’ firm will gain a similar edge from having the majority of its money from a cable company. His deals for NBCUniversal – which analysts regarded as a model of structuring – and TimeWarner indicate he will have the benefit of the doubt.  

And corporations are increasingly interested in putting some of their large cash balance sheets to better work than investing in government bonds, such as US Treasuries. In turn, large alternative asset managers, such as Blackstone and Carlyle Group, have listed and increasingly look like large conglomerates with their own corporate venturing units trying to help them. 

With more than $1 trillion held offshore outside of the US for tax reasons, corporations setting up investment teams could also be a helpful way to put this money to work. One senior executive at a US firm agreed companies used their overseas cash to do investments or mergers and acquisitions (M&A) and then repatriate (or not) the returns to the US.

According to preliminary data from Thomson Reuters, there was more than $843bn in global M&A activity, with nearly half in the US and nearly a quarter higher than the $694bn of M&A activity in the first quarter (Q1) of last year.

But as corporations invest more in dealmaking or investments, private equity firms have had less to do.

There was $35.25bn of private equity-backed buyout activity in the first three months of 2015, compared to $63.78bn in Q1 2014, according to Thomson Reuters data quoted by news provider Fortune. 

The challenge for statisticians in future will perhaps be more about distinguishing the two groups.