Although no official mandate has been issued, Terra Firma is apparently in preliminary talks with London-based private equity firm BC Partners over a possible deal for the Odeon & UCI chain, which could raise somewhere between £700m and £1bn. That’s a tidy sum for such a ‘mature’ business, but it is a substantial player: with 200 outlets and 1,850 screens it’s the largest cinema chain in Europe.
And besides, Cinemas are actually pretty hot property at the moment. You might think that the combination of the stagnant economy, falling disposable incomes and the general rise in household thrift would be putting the brakes on movie-going, but that is very far from what the square mile’s dealmakers seem to believe. Rival cinema chain Vue was snapped up by Doughty Hanson for around £450m last year, an earnings multiple of around 7.5, and guess who one of the disappointed bidders was? Yes, BC Partners. So in classic Hollywood stylie, the thwarted suitor has returned for another bite at the cherry.
Odeon & UCI posted EBITDA of £80m last year, so if it sold for £1bn that would be a hefty multiple of over 12 times earnings. That’s a substantial premium even though it is the dominant player. So why all this interest? Has the economic climate got so chilly recently that high rolling financiers have taken to watching movies to fill up their otherwise deal-free days?
Sadly not. Cash generative businesses like retail and entertainment are always popular with PE firms, whose use of leveraged finance requires steady incomes to service debt. Add in the new wave of 3D movie technology and there’s potential for a tasty and lucrative growth spurt.
Vue has also outlined plans to acquire one of its two larger rivals, so could also be in the bidding for Odeon & UCI - although competition issues could put the kybosh on that. Its alternative purchase would be Cineworld, a deal which Vue’s management reckon would save them around £20m a year.
Hands bought Odeon for 650m Euros in 2004, and merged it with UCI (acquired for 350m Euros) the same year. So, a deal within the expected price range would yield a decent if not stellar return.
As an alternative to a sale, Hands is also expected to look a refinancing the group, to the tune of £600m. If the industry really is about to take off, then that might be the better long-term option. But even ignoring the EMI situation, Terra Firma has already held the firm for seven years. Hands and his fellow backers are doubtless itching to cash in their stake and rise off into the sunset…