Inflexion reaps 3x return from Ster sale

Inflexion Private Equity has completed a first exit from its Fund 2, with the £32m sale of the Ster Century cinema chain to a management team backed by Hutton Collins.

Ster Century, an operator of cinemas in the UK and Ireland, has been sold by UK mid-market private equity firm Inflexion Private Equity to the firm’s management in a £32 million (€48 million; $60 million) deal supported by Hutton Collins.

Inflexion acquired the business just a year ago, investing around £6 million in a £25 million deal in which HSBC provided debt finance. The sale has generated proceeds for Inflexion’s investors of £19 million, equating more than three times cash invested and an internal rate of return (IRR) of 250 percent.

Ster’s first European cinema was opened in July 1999 in the Liffey Valley shopping centre in Dublin. It now operates seven multiplex cinemas in integrated retail and leisure centres at seven sites in the UK and Ireland, with 87 screens in total.   

Hutton Collins has led the secondary buyout and is supporting an incumbent management team including chief executive Mike Ross, a cinema industry veteran in Europe and South Africa, and chairman Jonathan Scherer, who has worked with management since 2001 and introduced the company to Inflexion.

Inflexion joint managing partner Simon Turner told PrivateEquityOnline the firm had tried “two or three times” to buy Ster Century before finally acquiring the asset at what he described as a “pretty good price” in July 2003. Previous owners Primedia and Royale Resorts had been keen to sell the business after making substantial losses from it.

According to fellow joint managing partner John Hartz, “revenues have grown strongly, margins have been increased on the back of improved operational controls and so it has generated us a lot of cash very quickly.”

The cinema sector is attractive to private equity firms thanks to steady cash flows and a significant recent increase in audience figures. The UK's Odeon chain, which was acquired last year by WestLB for £430 million, is currently up for sale and is reported to have received 14 offers from bidders including Robert Tchenguiz and Vue Cinemas. Rival UCI is also on the sale block and reportedly a possible target of Terra Firma Capital Partners.

Inflexion, which is listed on the UK’s Alternative Investment Market, targets buyouts and development capital investments in businesses with enterprise values between £10 million and £30 million. It has so far made two investments from its Fund 2, which achieved a first close on €50 million in July 2003 and then in January 2004 raised a further £21 million from London Merchant Securities in exchange for a stake of at least 53.7 percent. The deal also saw LMS hand Inflexion a portfolio of minority interests in quoted companies, which it is gradually divesting.

At the end of last week, Hutton Collins announced a final closing of its maiden fund on €235 million. The firm, which was founded in 2002 by Graham Hutton and Matthew Collins, has invested in businesses including UK bookmaker Coral Eurobet and restaurant chain Pizza Express.