Cirque du Soleil’s new owners are trying to turn a quirky circus into a strategically savvy business. It’s no small juggling act.
I’m seated on the inner edge of a cerceau—a thin, white hoop, suspended from the ceiling by a wire. My fingers tighten around the sides of the apparatus as my legs dangle, frighteningly far from the ground. I try to look casual, but it’s hard to feel at ease while perched, sans harness, on this raised-up roost. My mind wanders to the fine print on my insurance plan. (Are aerial hoop accidents covered under workers’ compensation?) That doesn’t exactly help me relax: I’m still recovering from the earlier routine when I hung from the hoop by my hands while spinning spasmodically.
“How high up was I?” I ask when I’m finally lowered back to terra firma, or in this case, a foam-filled, bright-blue gym mat that makes me wobble with every step. “Probably just about 10 feet,” answers James Guilford, a project manager with the renowned live-entertainment company Cirque du Soleil.
We are in a training room deep within the labyrinthine backstage belly of O, one of Cirque’s famous Las Vegas–based shows. The makeshift gym is full of exercise machines, trampolines, and trapeze swings—mere toys for the likes of Pierre Cottin, the ponytailed, French-born acrobat who is also on hand, assisting with my clumsy initiation to the cerceau. To my right, high up on the wall, is a poster of Cottin’s blond, beaming girlfriend, Christina Jones, an Olympic synchronized swimmer. Both are Cirque du Soleil performers. And I’m pretty sure neither has any body fat.
Clearly I am out of my element. But so are most of the people Guilford guides through these aerial adventures. And Guilford is a bit out of place himself. He’s a former educator whose mandate at Cirque is to head a new offering called Spark—essentially a corporate team-building retreat with more mystique and off-the-charts production values. Companies like Google, Adobe Systems, and Kmart Australia have already sent employees through Spark, which includes hands-on acrobatics training with Cirque talent. That makes Guilford part of an unusual, ambitious experiment. He’s helping transform a quirky, bohemian circus founded by street performers into an optimized, monetized, strategically managed global entertainment brand.
Cirque already has the global part covered: The performing powerhouse, founded in 1984 in Quebec, now encompasses 10 “resident” shows in the U.S. and Mexico, including O, and eight traveling productions, which tour to 130 cities around the world. Even as traditional circuses continued a long decline—in January, after a run of 146 years, Ringling Bros. and Barnum & Bailey Circus announced that it would soon shut down—a stunning 10 million people saw a Cirque show last year. Its extravagant productions are famed for their mixture of daredevil acrobatics and lowbrow clown comedy, pop hits and New Agey compositions, and daring design. (O, for example, takes place in and above a 1.5-million-gallon pool of water.) But lately Cirque has branched out in unprecedented and potentially lucrative ways: There are plans to launch a theme park and a kids’ entertainment project, and to design an interactive NFL store in New York’s Times Square. There are—of course—plans to go big in China.
In short, the big top wants to crack into the corporate big league. And leading that charge is private equity firm TPG Capital, which acquired a majority stake in the company in 2015 from its cofounder, Guy Laliberté, for an estimated $1.4 billion.
In a world of spangled leotards, Cirque’s new managers are the suits. The year before the acquisition, Cirque reportedly brought in $845 million in revenue. (By comparison, all the shows on Broadway combined brought in $1.37 billion last season.) But TPG has an extensive résumé when it comes to helping artistic enterprises grow—and it has much grander plans. Since the transaction, it has made sweeping changes, moving quickly to identify and exploit opportunities that may have been anathema to Cirque’s original managers, who preferred a more loosey-goosey approach to scaling the company.
Not that many of those managers are around to see the changes. Over the past 18 months, TPG has replaced nearly all the executive leadership. (No former employees contacted for this story, including Laliberté, agreed to talk with Fortune.) The private equity giant cleaned up Cirque’s financial practices and implemented data analytics and discipline where once there was mostly instinct. And, yes, the new team found ways to cut costs. “Cirque needed to make some major changes,” says Daniel Lamarre, its CEO since 2006 and one of a few executives who were asked to stay on post-acquisition. “We couldn’t continue to do the same thing and hope for different results.”
Indeed, Cirque’s shot-from-a-cannon rise had stalled in recent years. The Great Recession hit Cirque hard, especially where it really hurt: its high-profit-margin Vegas productions. A slew of setbacks ensued—including the early closure of its underperforming show Viva Elvis and the company’s first fatal onstage accident, in 2013, when an aerialist fell to her death during a show in Las Vegas. That year the company had its first-ever layoffs, letting about 400 of its 5,000 employees go. The ongoing struggles partly explain why Laliberté sold control of the circus (he retains a 10% stake).
The stakes are high for TPG too, as evidenced by the fact that co-CEO and cofounder Jim Coulter and TPG partner David Trujillo joined Cirque’s board. “This was a very sensitive transition, where we had to make sure we didn’t impact the creative genius that is Cirque,” says Coulter. His team sees Cirque as a way to play a bigger, counterintuitive trend: a yearning for live entertainment in a digital era. Recent surveys show that millennials, in particular, increasingly prefer to spend money on selfie-worthy experiences that screens and gadgets can’t provide. (Selfie breaks, by the way, are now built into Cirque shows.)
If TPG successfully expands the circus, it could create the go-to platform for live entertainment, a creator of not just Cirque-branded shows but events and experiences for all sorts of corporate clients. Just as notably, it could rewrite the playbook for expanding creative entities without choking off their artistic inclinations. Cirque is as inventive as companies come, as befits a business founded by people whose prior experience included breathing fire and playing the accordion. As a person familiar with both companies puts it, “They bought a circus. Not a figurative one, but a literal circus.” It’s TPG’s job to make sure nobody compares management to a bunch of clowns.
Nestled in this city’s working-class Anjou borough, not far from one of Montreal’s biggest shopping malls, is a warehouse that stores thousands of heads. They are the pates of Russian gymnasts, Mongolian contortionists, and West African dancers.
The busts are replicas—exact down to the distance between the eyebrows and the diameter of nostrils—of the heads of Cirque du Soleil performers. For decades, the making of these molds was part of Cirque’s onboarding process. New hires sat still as plaster was painstakingly shaped around their heads. The resulting sculptures were labeled with each performer’s name and used by the costuming department to create perfectly proportioned, individualized headpieces (think feathery masks and fuzzy clown hats). They were also used for repairs: When someone’s chapeau tore on tour, it would be sent to headquarters, where milliners patched it up, using the model to get the exact fit.
Some of these heads are also on display at Cirque’s mazelike main building, a few miles away, where the entryway is guarded by a giant metal sculpture of a clown shoe. The decapitated decorations, glued to tiny pedestals that protrude from the hallway walls, give the office the feel of an ancient multicultural mausoleum. “It does throw you a little bit when you round the corner and see this wall of heads,” says Trujillo, the TPG partner most involved in Cirque’s day-to-day operations. “As you get closer, you realize those are all individual people. That leads to the question, ‘Who are these people and why are they here?’ ”
TPG is one of the few investment firms that could ask such questions without making artistic types feel like second-class citizens. Founded in 1992, it has a sturdy track record of investing in companies in tech (Uber), retail (J. Crew), and airlines (Continental). But it’s also known for taking stakes in creative fields, where its portfolio includes movie studios, the giant talent agency CAA, and Fender Musical Instruments, creator of rock stars’ guitars. (U2’s ubiquitous frontman, Bono, is a TPG “special adviser”—and a board member at Fender.) And it has the resources to make a big impact in the thin-margin entertainment world: TPG has more than $74 billion under management.
It was in 2014 that TPG first began mulling big investments in live events, which Trujillo calls “DVR-proof.” Not long thereafter, a center-ring opportunity came along: The firm’s contacts at CAA passed the word that Cirque was looking for a buyer. (Cirque and CAA already had a working relationship based on bringing third-party intellectual property like music and movie characters to Cirque’s live shows.)
Inside TPG’s Bag of Toys
TPG has a history of investing in brands with creative DNA and loyal followings—the kind that can be tricky to turn into efficiently run businesses.
In 1996, TPG bought a 51% stake in the iconic Italian motorcycle maker. It helped the firm focus on new markets and streamline manufacturing. Ten years later, TPG sold off Ducati; it is now owned by Audi AG.
New movie studios are a rare commodity. But TPG and its partners think they have a winning formula. STX, founded in 2014, focuses on easy-to-produce, mid-budget films and has deals to distribute in China.
After shelving plans for an IPO, the guitar-maker became majority owned by TPG and its partners in 2013. It hired a new CEO, named Bono to its board, and allowed customers to order guitars online for the first time.
Retail has had a rough decade, and J. Crew is no exception. TPG, an investor since 1997, took it public, then led a 2011 buyout to take it private. Reportedly it recently slashed the value of its stake by more than 80%.
TPG recently upped its investment in the talent agency, becoming its majority owner. Under TPG, CAA has brought in fresh leadership, cut costs, and invested heavily in new areas like sports and licensing.
Last year TPG sank $250 million into a minority stake in the high-end river- and ocean-touring company. The plan? To accelerate Viking’s growth—particularly in China—and strengthen the company’s balance sheet.
Despite its relatively small size, Cirque was attractive. At a time when most circuses were fading sideshows, Cirque had a distinctive, edgy feel, along with remarkable capabilities virtually unique in live entertainment. Its leaders had developed a global network for recruiting contortionists and clowns. They had engineered some of the most elaborate stage sets ever built. They had unmatched expertise at dyeing belt buckles and designing shoes for little people and decking stretch-velvet leotards with 4,000 tiny mirrors and 155 crystals.
But that creative rigor hadn’t translated to the corporate side. While Cirque’s leaders were seasoned, they weren’t au courant. Cirque wasn’t utilizing digital marketing tools. Ticket pricing systems hadn’t been upgraded. Financial reporting was exasperatingly sporadic. In deciding whether to make an offer, Trujillo traveled to Montreal for a management presentation led by Lamarre. As the Cirque team outlined a multiyear strategic plan, Trujillo had a realization: This basic corporate exercise was “something the company had historically not done.”
TPG turned elsewhere for reassurance. The firm enlisted Jonathan Tétrault, then a managing partner in McKinsey’s Montreal office, to do some market research. Tétrault calculated Cirque’s Net Promoter Score, a measure of the loyalty of its customer base. “The brand of Cirque du Soleil was extremely strong,” says Tétrault. “Even people who have not seen the shows have respect for the brand.”
For TPG, that helped tip the balance. The firm recruited partners—Chinese investment group Fosun and Canadian pension fund Caisse de Dépôt—and made its best offer to Laliberté, who owned the vast majority of the company. After a bidding process handled by Goldman Sachs, the founder handed the reins to the TPG group, and the acquisition was finalized in July 2015. (Laliberté has since invested in real estate and other ventures, including a cemetery that he says will someday allow visitors to use holograms and other whiz-bang technologies to “interact” with the deceased.)
Almost overnight, the circus began to change. Unprofitable distractions like nightclubs and restaurants were killed off. In their stead, TPG identified a list of new revenue opportunities and improvements to Cirque’s traditional shows. But to execute that wish list, Cirque needed the right processes and people in place. One of them was Tétrault. The new owners coaxed the exec to leave McKinsey and become Cirque’s new chief operating officer. In his gray jacket and slacks and slicked-back hair, Tétrault is a near-caricature of the more buttoned-up management team at Cirque. (Buttoned-up by comparison, at least: Laliberté famously donned a foam clown nose in 2009 when he traveled to space—having paid $35 million to spend 12 days aboard a Russian Soyuz.)
Each of the new “suits” brought along a team and a set of new tools—table stakes at most corporations but largely foreign to Cirque. Kristina Heney, Cirque’s first-ever chief marketing officer, brought in the company’s first digital and social-media marketing programs and a new customer-relationship management system. Stéphane Lefebvre, a longtime public company exec, came on as CFO. Because Cirque had been a founder-owned business from inception, he says, it had never adopted disciplined accounting practices. “When you have only one guy owning the company and a report is due on Monday, it doesn’t matter if you send it on Monday,” says Lefebvre. Suffice it to say, that’s no longer true.
The sweeping management changes inevitably led to tension between the leotards and the suits, as Lamarre admits. With his tinted blue glasses and polka-dot ascot, he’s a visual reminder of Cirque’s more colorful culture. But the new structure has given him more freedom. “I passed from a regime of a one-man show, which was Guy, to feeling it’s a partnership,” Lamarre says. That said, he lauds Laliberté as a “creative genius” whom he still calls on to get advice on the artistic front.
Just as important, the creative part of the business has largely been left to the artists. “I said to TPG at the time, ‘You can come in my office 10 times a day if you so desire. I’ll give you all the financial and operational information you need,’ ” Lamarre says. “ ‘But you shouldn’t go in the creative department, because that’s the core of the company.’ ” TPG has kept Cirque’s creative leadership intact, from the longtime head of costume and creative spaces, Benoît Mathieu, to Bernard Petiot, vice president of casting and performance.
How to Manage Creative Chaos
TPG is walking a fine line at Cirque du Soleil, striving to develop it as a business without snuffing its creative spark. The playbook:
• Use data artfully
Dynamic ticket pricing, which TPG introduced at Cirque, can help arts organizations get the optimal revenue from shows when they’re hot, while moving more tickets at discounted rates during slowdowns.
• Expand judiciously
Cirque had expanded its brand to businesses that had a public presence, but no profits (e.g., nightclubs). TPG’s ideas generally have clearer potential for revenue and for generating wider publicity.
• Let the beautiful weirdos be weird
TPG thoroughly overhauled the executive team on Cirque’s business side, but it left the chief creative decision-makers in place—and doesn’t interfere with them. That’s partly a recognition that the core of a successful creative brand is distinctive and hard for outsiders to improve.
Other arts leaders are watching the transition with interest. “One understands the need for professionalization,” says Patrick Willingham, the executive director of New York’s Public Theater and the former president and COO of another creative entertainment company, Blue Man Productions. “You have to give as much power to those voices who are advocating for the art as to those who are advocating for the revenue.”
That tightrope walk is visually apparent at Cirque’s headquarters. Yes, there are former McKinsey consultants crunching numbers. But there are also vats of dye and spools of glittery string and wigmakers and acrobats. And heads—but not quite as many of them. These days the wig-and-hat busts have been outsourced, and plaster is obsolete. Each new performer’s head is now scanned by computer. The files are sent to a firm outside Montreal where an automated cutter chisels models out of a synthetic material called Renshape, and only as needed. “It’s a lot lighter, a lot faster, a lot cheaper, and a lot more stable,” says Mathieu, the costumes chief. “And we don’t need to make them all the time.”
TPG’s spacious headquarters in the heart of San Francisco’s Financial District feels a world away from Cirque’s colorful campus. The understatedly swank office is where most of the firm’s biggest deals have been drawn up, from its 1996 purchase of motorcycle maker Ducati to its 2011 leveraged buyout of J. Crew. And its proximity to Silicon Valley could yield big benefits for Cirque.
“The circus has been an incredible showcase of human capacity for centuries,” says Brent Bushnell, CEO of Two Bit Circus, a startup that develops interactive, tech-centric experiences for corporations. “But entertainment needs to evolve.” TPG, which has made major investments in Uber and Airbnb, among others, is well-positioned to help Cirque do that. Late last year, when Cirque brought Luzia, a show inspired by Mexican culture, to San Francisco on tour, co-CEO Coulter invited his tech exec friends to see it—and to talk about what virtual reality could add to the experience. The prospect of a pipeline to such wizardry energizes Cirque’s managers. “We’ve never had that before,” Lamarre says. And the circus is already strengthening its ties with Facebook and boosting its YouTube presence.
It will take more than technology, of course, to engage with younger audiences. Cirque has prioritized creating more shows that incorporate recognizable characters and music (replicating hits like the Beatles-themed Love). Brands matter too. Cirque’s new show, Volta, which launches in Montreal in April, will include action sports like snowboarding and BMX. It will also have a first-time “content partner”: energy drink Red Bull. Bill Hornbuckle, president of MGM Resorts, which hosts six of Cirque’s shows, says such evolution is critical. “There will always be a place for Cirque and its core product,” he adds. “But Las Vegas does not need another circus show.”
One place that TPG believes does need a circus show is China. It’s already the country of origin for many Cirque performers, but the circus wasn’t previously able to crack the market. TPG is an old hand there, having invested in China for more than 20 years: Its notable deals include buying a stake in computer maker Lenovo and partnering in 2014 with China’s Hony Capital to launch STX Entertainment, a movie studio focused on mid-budget films.
Such connections are now turning into deals. Later this year, Cirque will launch a touring show in six cities across China, including Beijing. And sometime in 2018, a show unique to China will open in Hangzhou. The company also plans to create its own local school for technicians (a sizable chunk of the staff for any Cirque production). “China has the potential to maybe double the size of this organization,” says Lamarre.
TPG has other growth tricks up its sleeve, and its ambitions sound vast. Coulter compares Cirque to another entertainment company that started small. “Just as Disney … started in animation but became so much more over time, Cirque has the ability to do so much more,” says Coulter.
Whether or not Cirque reaches that scale, one question is how long TPG will keep its stake: Private equity firms, after all, are structured to look for an “exit.” Cirque’s prospects as a public company are murky. But given its new China ties, it’s more likely that it would be bought by a Chinese investor or conglomerate. A cash-rich acquirer like Dalian Wanda, for example, which has already snapped up Legendary Entertainment, the company that licenses the Ironman competition and Dick Clark Productions, could easily buy Cirque. And China has huge cities that could host permanent shows and use them to lure tourists, as Las Vegas does today.
However it plays out, the Cirque that emerges 10 years from now will look very different from the company that was Cirque just two years ago. Change can be disorienting, but it’s preferable to ceasing to exist. Cirque may have the DNA to survive where traditional circuses failed—and no circus in memory has had such a deep-pocketed, aggressive backer under its tent.
A version of this article appears in the March 1, 2017 issue of Fortune.