Private equity group Doughty Hanson has sold cinema operator Vue Entertainment to two Canadian investors for 935 million pounds ($1.5 billion), cashing in on an industry where new technologies like 3D movies have helped it to thrive in recession. The sale, to OMERS Private Equity and Alberta Investment Management Corporation, will more than double Doughty's original investment and is expected to close by late July, Doughty said in a statement on Monday.
The buyout firm paid 450 million pounds to buy Vue in December 2010, and then embarked on an expansion drive beyond the chain's UK home market, including acquisitions of rivals in Britain, Germany and Poland. Cinema ticket sales have remained strong in recent years, despite the recession sapping consumer spending power, with big box office hits such as James Bond film "Skyfall" and Batman flick "The Dark Knight Rises" boosting sales last year.
This, combined with a shift to new digital technologies, has helped cinema operators to improve their profit margins. "As a leisure activity cinema going is very resilient, and it's always proved itself to be very resilient," Wayne Brown, an analyst at Canaccord Genuity, said. "The box office is doing very well and has benefited a lot from 3D technology."
As a rough estimate, Brown says Doughty is selling Vue at over 9 times earnings before interest, taxes, depreciation and amortisation - more than the 8 times at which listed rival Cineworld is currently trading. At 1050 GMT, Cineworld shares were up 1.9 percent at 324 pence.
Together with Odeon & UCI - set to be put up for sale or readied for an initial public offering by its private equity owner Terra Firma - Vue and Cineworld run around 70 percent of UK cinema screens between them. According to the Cinema Exhibitors' Association, UK box office revenues rose 5.9 percent to 1.1 billion pounds in 2012. The purchase of Vue by two deep-pocketed Canadian funds suggests the cinema chain will continue to build market share by acquisitions across Europe, Brown said.
Tim Richards, founder and CEO of Vue, said in a statement he would grow "the Vue business through our continuing plan for organic growth supplemented by strategic acquisitions." In a separate statement, Mark Redman, Senior Managing Director and Head of Europe for OMERS Private Equity, said the new ownership gave Vue "the distinct advantage of patient capital and deep pockets for organic and acquisitive growth."
For Doughty, the sale marks its second realisation from its fund V, which has now returned more than half of commitments to investors and has a further six investments still to realise. Over the past 18 months mid-market focused Doughty has also floated luxury travel-bag company TUMI and manufacturing firm HellermannTyton, as well as selling activated carbon manufacturer Norit.