Category Archives: Mergers & Acquisitions

Vista Continues Strategic Growth and Diversification With Stake In MACCS

Murray Holdaway, Bert Huls and Mathieu van As

(From left): Murray Holdaway, Bert Huls and Mathieu van As

One of the more important stories to come out of this year’s CinemaCon is one that didn’t even get announced until more than a week after the show ended. By then anyone who follows such news was already well aware that the cinema exhibition software firm Vista Entertainment Solutions had acquired a stake in MACCS International, the developer of market leading distribution software. We’d like to summarize why we believe this is a significant industry development.

As I noted just before this year’s CinemaCon, I have a great deal of respect for Murray Holdaway, Vista’s Chief Executive, and Derek Forbes, the company’s President of North America. Over nearly twenty years they, along with a growing team of smart executives, have taken the New Zealand based outfit from being a small player in a crowded field of cinema point-of-sale vendors to being the dominant exhibition software solutions developer in the space. In the process, Vista has left a wake of once prominent entities such as Splice and Titan Technologies.

In all fairness, Vista still faces a field of new and perennial competitors. They include, though are not at all limited to, regional and worldwide entrants such as Allure Global, Compeso, Diamond Ticketing Systems, Jack Roe, NCR, Omnico, Omniterm, Ready Theatre Systems, Retriever, TicketNew, TicketSoft and Vendini.

What has helped set Vista apart from some of these rivals is how the company has been able to think beyond its own systems and offerings to see opportunities in related or adjacent markets. They have managed to avoid pitfalls, even when enticing distractions beckoned with the promise of future riches. A great illustration of this would be Vista’s decision to not develop a theatre management system (TMS) for digital cinema installations. Such software is generally forced upon exhibitors by integrators and has become commoditized, save for a few solutions offered by Arts Alliance Media, Cinedigm and Unique Digital.

At the same time, Vista has been adept at increasing its revenue through a series of wise decisions about building or acquiring product offerings that have expanded its customer base. For instance, the company developed Veezi as a cinema management and ticketing system for small and independent cinemas; a market it didn’t serve and one that couldn’t afford Vista’s current solutions.

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Dolby Acquisition of Doremi Makes Perfect Sense – Here’s Why

Dolby Doremi Logo

The motion picture industry jump started their week with the surprising news that Dolby Laboratories, Inc. had reached an agreement to acquire Doremi Labs, a leading manufacturer of professional audio visual equipment, for USD $92.5 million in cash. The deal also includes a four-year earn out of USD $20 million which is contingent upon performance and other factors. As is customary, regulatory bodies both in the United States and internationally will need to approve the deal, though the acquisition should be complete by the end of 2014.

Dolby hardly needs an introduction. They’ve been providing audio and imaging technologies to the motion picture, broadcast and music industries for just shy of 50 years. The San Francisco based company is best known their proprietary noise-reduction systems, though they have also been at the forefront of multichannel audio, compression and broadcast transmission technologies. Dolby has annual revenue that has climbed from USD $327.9 million in 2005 to USD $909.6 million last year and net income that has grown from USD $52.2M to USD $189.2 million during the same time period. Its best year for both revenue and net income was 2011 when it rang up USD $961 million and USD $309.2 million respectively. The company’s current market cap is USD $4.2 billion.

Doremi Labs, founded in 1985, may not be as much of a household name as Dolby, though over the past 14 years it has steadily built a solid reputation within the industry as the manufacturer of digital cinema servers. Its servers and integrated media block (IMB) is installed in over 47,000 58,000 movie auditoriums around the world and has been purchased by exhibitors of all sizes. The company, which has offices in Burbank, CA and France, also markets broadcast and post-production equipment as well as closed caption devices. As a private company Doremi doesn’t report its revenue and earnings.

If one needed another sign that the global digital cinema conversion was coming to an end, beyond Hollywood studios ceasing the distribution of film prints, there is none better than this deal. Here is why we believe this acquisition is a smart move and makes perfect sense for both Dolby and Doremi:

Doremi

As mentioned, after more than a decade the rollout of digital cinema technology around the world has reached a saturation point. According to a February 8th presentation delivered by Media Salles in Berlin on February 8th, upwards of 87% of the world’s movie screens have converted to digital projection as of January 1st of this year. Doremi has grown quite steadily due to the brisk sales of its digital cinema technology over the past decade. While the company brought in revenue from the sale of pro-A/V equipment and technologies, the lion’s share of its earnings is likely derived from d-cinema related products.

Doremi would have seen sales volumes of existing digital cinema product lines plateau (if it hadn’t already) and potentially decrease during the next three to five years. Demand for d-cinema equipment (servers, IMBs and projectors) will decline and new sales will be dependent on the construction of new theatres (new builds) and technology refresh cycles. This in turn leads to the risk of a loss in market share should exhibitors select equipment from other manufacturers.

From all appearances Doremi was in good shape to weather a cyclical sales plateau or decline. The company, headed by Camille Rizko its founder and President, was right-sized with only 130 employees. In addition, Doremi’s strong engineering team is working on a slate of new products that include new hardware and software. An example of their handiwork is CaptiView, a closed caption system which was introduced a few years ago but the market for which is growing. Add to this the extensive and multinational dealership network Doremi has built up to sell such products.

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Cineworld’s Me-Too Eastern Expansion Comes At A Price

Cineworld Logo

UK’s publicly listed exhibitor Cineworld is expanding into Central Europe through £503 cash and equity deal for Warsaw-listed Cinema City International (CCI), which will make it the second largest chain in Europe after Odeon UCI. The deal signals a strategic shift for Cineworld after a small domestic acquisition and and an abandoned south European deal, indicating that future growth lies in Central and Eastern Europe (CEE), as well emerging markets like Turkey and Russia, while box office declines in Western Europe.

The deal, subject to shareholder approval, will see Cineworld pay CCI £503 in cash and shares, of which £272m will be in cash, with a £110m rights issue launched to help fund the purchase, and giving CCI a 24.9 per cent stake in the merged business. CCI currently operates 99 multiplexes with 966 screens (giving it a 9.75 screen/site ration) in six countries in Central and Eastern Europe (Poland, Hungary, Czech Republic, Bulgaria, Romania and Slovakia) as well as in Israel. The combined entity will have  201 sites and 1,852 fully-digital screens (9.21 s/s ratio), indicating that the two are a good match in terms of mostly being new multiplexes. Shares rose by 10.27 and seven per cent for Cineworld and CCI respectively, meaning the markets largely welcomed the merger. The operator will be the largest or second largest in all territories where it is present. But at what price?

Cinema City Territory Map

Competition and change in strategy

Unlike its UK competitors Odeon UCI and Vue, Cineworld has previously been focused exclusively on UK and Ireland , where it operates five of the ten highest grossing sites (though both BBC and Screen claim that it operates all ten of the most profitable sites). Odeon had inherited sites in Spain, Germany and elsewhere through its merger with Odeon in 2004, following the acquisition of both by Guy Hand’s Terra Firma. Odeon UCI abandoned plans for a £1bn+ floatation, settling for a £475 re-financing plan instead two years ago. Reasons cited for this change included “problems in its Spanish markets, where results were weak in the second quarter after a 30 per cent fall in volumes, and a bumper crop of bigger blockbuster films set for release in 2015.” Vue had meanwhile bought Polands second largest cinema operator Multikino, having already established itself in Germany (through the acquisition of CinemaxX), Portugal, Denmark and Taiwan, before being bought by two of Canada’s largest pension funds last year.

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Canadian Investors Double Down With Purchase of Vue Entertainment

Tim Richards of Vue Entertainment

Tim Richards, CEO of Vue Entertainment

There is an old proverb popularized by the 19th century English writer W. E. Hickson that states “If at first you don’t succeed, Try, try, try again.” It seems Alberta Investment Management Corp. (AIMCo) and OMERS Private Equity – the investment division of Ontario Municipal Employees Retirement System – are heeding this advice when it comes to the cinema chain Vue Entertainment, even though it’s costing them a fortune.

In 2010, the two Canadian investment firms were outbid by the London-based private equity group Doughty Hanson & Co. who paid GBP £450 million (USD $730 million) for Vue. At the time Vue was the third largest circuit in the United Kingdom operating 68 cinemas made up of 678 screens. Outside the U.K. the exhibitor had one theater in Portugal and another in Taiwan. We reported all of this back in November of 2010 when the sale occurred, which is why researching this new story felt like déjà post.

This week AIMCo and OMERS re-teamed to successfully purchase Vue Entertainment, albeit for a whole lot more than Doughty Hanson ponied up three years ago. In fact, the duo have agreed to pay Doughty Hanson, one of Europe’s largest private equity firms, GBP £935 million (USD $1.5 billion) for the circuit. (That’s twice as much than Doughty Hanson paid three years ago for those keeping score at home).

Back in 2010 we mentioned that Vue might use some of their new found private equity to expand via acquisitions and/or building new cinemas. That’s exactly what they did. In the past three years the cinema chain has doubled in size by picking up Apollo Cinemas, a rival U.K. exhibitor, in May of 2012, as well as Germany’s second largest circuit, CinemaxX, in July 2012 and Poland’s Multikino this past May.

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Cinema City Grows With Palace Cinemas Acquisition

Cinema City Growth Chart.png

Earlier this month Israeli based Cinema City International became the third largest theatre chain in Europe when they acquired Palace Cinemas. The deal includes 8 multiplexes in the Czech Republic, 4 multiplexes in Hungary and 3 multiplexes in Slovakia. This gives CCI an additional 141 screens and makes it the largest exhibitor in Central and Eastern Europe.

The sale of Palace was somewhat inevitable. The chain was founded by Arthur Goldblatt and V.J. Maury and backed with investment from a private equity firm, Argus Capital Partners. Presumably Argus wanted to cash in on their more than ten year investment in Palace. It appears they should be very happy. CCI paid EUR €28 million (or USD $38.16) for Palace which is more than six times the company’s 2010 EBITDA. The acquisition was financed with cash CCI had on hand and existing credit lines.

The acquisition has a number of upsides for CCI, not the least of which is their entry into Slovakia. The company is also increasing it’s market share in both the Czech and Hungarian markets. CCI entered the transaction as the third largest exhibitor in the Czech Republic with 13% of the country’s admissions and 15% of its box office. After picking up Palace they’ll be the country’s largest exhibitor with 111 screens across 13 venues representing 40% of admissions and 45% of the box office.

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Digital Domain Gets Dimensionalized With Acquisition Of In-Three

Digital Domain + In-Three.jpg

How important is 3D to the entertainment industry or is it just another fad? It’s a question that up until the release of “Avatar” was asked at every trade show and industry conference. But if anyone is still questioning the future of 3D in Hollywood, Thursday’s announcement that Digital Domain has acquired In-Three should help them overcome their doubts.

Digital Domain is the visual effects giant originally founded in 1993 by Industrial Light and Magic veteran Scott Ross, filmmaker James Cameron special effects guru Stan Winston. The company was immediately successful in proving a worthy competitor to ILM, who dominated the special effects market at the time. It didn’t hurt that some of their projects went on to win numerous awards, including “Titanic” which earned an Academy Award for visual effects. Based in Venice, California, Digital Domain has worked on dozens of films not to mention countless commercials and music videos. They recently completed work on Disney’s “Tron:Legacy” due out in December.

In-Three, on the other hand, has focused its attention on developing a patented process for turning 2D versions of movies into high quality 3D films. Since 1999 the company has perfected a process they’ve dubbed Dimensionalization which allows filmmakers and content owners to efficiently convert 2D footage into stereoscopic images. Their most recent work can be seen in Tim Burton’s adaptation of “Alice In Wonderland”.

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Private Equity Firm Acquires U.K.’s Vue

Vue Cinemas Logo.jpgLate last week Vue Entertainment, the United Kingdom’s third largest movie theatre chain, was sold to a private equity firm. Doughty Hanson & Co. will reportedly cough up GBP £450 million (USD $730 million) to take over the circuit. The news was picked up primarily by business and trade publications, though depending on how events play out it could actually prove to be rather significant.

Based in London, Vue began it’s life in 1998 as SBC International Cinemas. With backing from Boston Ventures, co-founder and chief executive Tim Richards had opened six theatres by 2003. That was the year SBC pulled off a huge coup by acquiring the much larger Warner Village Cinema chain for £221 million (USD $353.6 million) and rebranding the company as Vue Entertainment. With 42 venues and 384 screens Vue became the third largest exhibitor in the U.K.

Then in June of 2006, Vue announced a management buyout of the company. The Bank of Scotland helped finance the deal which was estimated at £350 million (USD $644 million). By that time Vue had grown to 544 screens across 55 cinemas. Vue’s executive team took a controlling 52 percent share of the company with Coller Capital Ltd. taking a 29 percent ownership and Och Ziff Capitam Managment Group holding a 19 percent stake.

Today Vue operates 68 cinemas accounting for 678 screens throughout the U.K. and Ireland. Over last several years the company has been responsible for about half of all the multiplexes built in the U.K. They also own one theatre in Portugal and another in Taiwan. But that number could soon grow quite rapidly. Bloomberg suggested that Vue might use some of the cash from the Doughty Hanson sale to buy the U.K.’s largest circuit, Odeon, or possibly Cineworld. Another scenario has Vue scooping up a European theatre chain outside the U.K. Of course, they could always expand by opening new cinemas.

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Hoyts Expands With Acquisition Of AMC

Hoyts + AMC.jpg

Last week Hoyts Cinemas announced that it had reached an agreement for an undisclosed sum to purchase privately owned Australian Multiplex Cinemas (AMC). Based in Sydney, Hoyts presently operates 50 cinemas with 406 screens throughout Australia and New Zealand. After taking over the five multiplexes owned by AMC they will have a total of 448 screens which will account for roughly 25 percent of the AUD $1 billion box office in Australia.

Three of the five venues Hoyts will be picking up are located in Queensland, specifically Redcliffe, Stafford and Sunnybank. The other two are in Tweed Heads, New South Wales and Frankston, Victoria. This means Hoyts will now operate multiplexes in every Australian state, as Delfin Fernandez, the company’s Chief Executive Officer, pointed out in his press release statement:

“We are thrilled to build a truly national footprint of Hoyts cinemas by integrating these great assets into our network. We are particularly excited to continue the full digitisation of the AMC circuit in the first half of 2011, bringing Queenslanders greater opportunities to enjoy cutting-edge 3D technology and experience new content such as live sporting and music events.”

This isn’t the first time Hoyts has courted AMC. In October of 2008 Hoyts announced a bid to takeover AMC, which never came to fruition. Though this new deal requires regulatory approval, both circuits expect the sale to be completed sometime next month.

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DTS Digital Cinema Sold To Unknown Satellite Company

DTS DC footprint

So long and thanks for all the Guinness – DTS has put an end to the corporate Seitensprung that was DTS Digital Cinema, which has been picked up by UK satellite company Beaufort International Group Plc. Here is what the press release on DCinemaToday.com had to say in the opening paragraph:

Beaufort International Group Plc announced today that it has acquired the business and assets of DTS Digital Cinema from DTS, Inc. for an undisclosed sum. Beaufort made the acquisition through its US subsidiary, Beaufort California, Inc. Chris Thomas, Beaufort California, Inc.’s CEO, commented, “We are very pleased to have made this acquisition. DTS is an established brand in the cinema industry, and provides a solid foundation for us to develop our plans in digital cinema.” Thomas continues, “DTS has laid the groundwork for us with its 15-year history in providing the highest quality digital audio for film to over 30,000 screens worldwide.

The price has elsewhere been quoted as $3.3m, which puts it at leas than half of the previously disposed Lowry Digital Images (sold last month to Reliance for $7.5m). From the press release we learn that Beaufort “will continue to use the DTS brand for the foreseeable future under our agreement with DTS.” Strangely there appears to be no website for Beaufort, so it is up to the trusty analysts at Screen Digest to drill down into the deeper meaning of this buy:

Datasat is a deliverer of media content through its wholly-owned (mainly) satellite networks, and the acquisition fits into a strategy of widening their reach to the digital cinema space. Up to now, Datasat’s content delivery strategy has focused on areas where high quality, secure file trasnfers are necessary, and has avoided media and broadcast industries. However, with the introduction of digital cinema, which needs very secure networks for large files (as opposed to live feeds or pre-recorded broadcasts) this move makes sense. Currently, company operates in five broad industrial areas: corporate, diplomatic, emergency, security, medical.

Nowhere is there any mention of Ireland, perhaps wisely as the nationwide Irish conversion to digital cinema is a standing joke in digital cinema circles. While there have been some positive noises about the DTS Digital Cinema hardware and platforms, it remains to be seen how the de-merged company will succeed against the likes of Doremi and Dolby, which unlike DTS is holding on very hard to its digital cinema division.

DTS meanwhile goes back to focusing on consumer products licensing, which seems to be a profitable field judging by this article; DTS shares jump as 1Q profit rises on sales.

Pyramid Scoops Up Gaming Company Aurona

Pyramid SaimiraPyramid Saimira continues to play in the merges and acquisitions pool, this time buying a majority stake in the U.K. gaming company, Aurona Technologies. While there are no details as to the amount Pyramid spent, VC Circle reports it was an all cash deal.

At first glance, Aurona Technologies may not initially seem like a an appropriate acquisition for Pyramid Saimira Group which has traditionally been focused on film production, distribution and exhibition. After all, Aurona is a video game software company with headquarters in London and offshore development offices in Hyderabad. They specialize in working with video game developers who publish titles for devices such as Sony’s Playstation and Microsoft’s XBOX 360. However, Pyramid’s theater subsidiary is looking to install the latest digital cinema equipment in their venues a move that would allow their theatres to be used for viewing concerts, sporting events, meetings and. . . interactive gaming tournaments.

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