Private equity group Terra Firma has announced that UK/European cinema chain Odeon & UCI Cinema Group (Odeon for short) is for sale. The merged exhibition operation failed to attract bidders willing to match the asking price in both 2011 and 2013 but Terra Firma’s chair Guy Hands is hoping that third time will prove the charm. Yet prospects for potential buyers are distinctly uncertain and Terra Firma has admitted that it may end up seeking a stock market listing instead.
Hands is quoted in a Reuters exclusive as saying:
“We will look to begin the process to sell Odeon towards the end of the year,” said Hands yesterday. “We are likely to appoint banks by May. Possible buyers could include US cinema groups or South American cinema firms, and private equity groups from Europe, the US, and China.”
The blunderbuss approach of targeting pretty much every potential buyer on the planet, while hedging your bets by reserving the right to do an IPO, could be faulted as demonstrating a lack of finesse or coherent sale strategy. It is also not clear what Terra Firma has to gain by announcing its intentions (emphasis on plural) this far in advance of even appointing a bank, unless it thinks it can instigate a feeding frenzy of suitors and bidders.
There is no asking price at this stage, but the figure of GBP £1 billion (USD $1.55 billion or EUR €1.36 billion) has been mentioned, which is less than the failed asking price of GBP £1.2 billion in 2011. The exhibitor has not reported income and profit for the 2014 financial year, but the 2013 figures reported last April saw profits before interest, tax and other charges decline 24% to GBP £69.2 million (USD $107.5 million) while sales shrank by 5% to GBP £706.7 million (USD $1.1 million).
A detailed valuation analysis of Odeon’s worth is beyond the scope of this article and the sort of things banks get paid big bucks to do. For a handy overview of the key metrics and tools for evaluation of (US) cinema exhibition operations we refer those interested to the Fulcrum Inquiries Valuation Guide: Movie Theaters. As a recent guide, Australia’s Hoyt’s was sold last year on undisclosed terms to a Chinese investor but had earlier been valued at AUS $900 million (GBP £473.9 million or USD $731 million) on the basis of revenue of AUS $550 million and profit of earnings before interest, tax, depreciation and amortisation of slightly more than AUS $80 million.
Using Hoyt’s as a model – not unreasonable, since the chain share many characteristics with Odeon – gives a valuation of somewhere between GBP £778 million to GBP £1.156 billion, which gives an average of GBP £967 million. Hands would be more than keen to round that up to a cool one billion pound sterling. But is Odeon worth it and who would buy it?