Is A. Dale (“Bud”) Mayo the savviest man in US exhibition? One thing is for sure, after Carmike’s acquisition of Digiplex he is one of the country’s richest cinema entrepreneurs, with a hat-trick of deals in the last 15 years. So what lies behind this merger and what were the true reasons for it?
The deal itself is relatively straightforward: Carmike Cinemas is acquiring Digital Cinema Destinations Corp. (“Digiplex”) in an all-shares deal that will see each of Digiplex’s 7.93 million shares exchanged for 0.1775 shares of Carmike common stock. The deal is valued at around USD $64 million, of which USD $45 million is in stock and USD $19 million in assumed debt and obligations. Mayo has thrown his 39.5% voting stock behind the deal and the FCC and other regulatory bodies are unlikely to raise any objections or even require any screen sell-off.
Digiplex currently operates 206 screens across 21 locations and is in the process of acquiring another 5 theatres with 53 screens, for a total of 26 cinemas with 259 screens. Once the deal goes through Carmike will have grown to 280 cinemas with 2,936 screens across 41 US states. Significantly Digiplex brings four new states to the Carmike fold where previously it had no presence: Arizona, Connecticut, Maryland and New Hampshire.
What’s In It For Carmike
There is a two-fold reason for Carmike to do this deal. Inorganic growth (i.e. mergers and acquisitions) was the only way that Carmike could achieve the goal announced by its head last year.
Carmike Cinemas President and Chief Executive Officer David Passman stated, ”Carmike continues actively expanding our growing circuit, on our way to 300 theatres and 3,000 screens through selective acquisitions and the addition of multiple new-build theatres in promising locations like Decatur, across `Hometown America.`
Carmike has already acquired Muvico Entertainment with its nine cinemas with 147 screens in Florida, California and Illinois for around USD $31.8 million late last year. Prior to this it purchased 16 multiplexes from Rave Review Cinemas (including seven IMAX screens) and three multiplexes from Cinemark (one Imax theater) for a total of eight Imax screens. There was also two theaters with a total of 16 screens in Kentucky and Tennessee bought from Phoenix Big Cinemas in 2012.
So the deal to buy Digiplex is only the latest but largest in a series of acquisitions that total 30 multiplexes even prior to Digiplex in the last couple of years. While there is consolidation in the cinema industry both in the US and beyond, there is thus a clear roadmap that Carmike is following.
But these numbers, either multiplexes, screens, dollars or shares don’t tell the full story for Carmike – whereas a single digit does: 4.
The Lonely #4
Carmike likes to describe itself as “one of the nation’s largest motion picture exhibitors” and as “America’s Hometown Theatre Chain” but no matter which way you look at it, the chain is only the fourth largest circuit and a lonely fourth at that.
Why ‘lonely’? Consider who the top three circuits are, as well as who is fifth.