When Tim Richards, chief executive of Vue International, decided to sell control of his company in 2010, he triggered a lengthy process that would involve 27 potential suitors from the upper echelons of the private equity industry.
So when the business was sold again three years later, he was relieved to strike a £935 million ($1.2 billion; €1 billion) deal with little more than a handshake over dinner.
Here he reflects on the lessons learned in his dealings with private equity in the years since Vue, originally known as SBC International, opened its first cinema in 1999.
Lesson one: Maintain relationships even in the face of defeat
For private equity investors, a sizeable, off-market deal without competition is the holy grail. That is exactly what Ontario Municipal Employees Retirement System got when Richards and the pension fund’s global head of private equity, Mark Redman, sat down in 2013.
“We shook hands on it and Mark delivered it lock, stock and barrel,” says Richards. “We had hundreds of people working on this thing by the end and credit to Mark, to OMERS, for keeping it under wraps and tight like they did. It’s almost unprecedented.”
OMERS agreed the deal despite having been one of the unsuccessful parties in Vue’s previous sale. The transaction was in part thanks to Richards and Redman having established a close relationship outside of business.
“A lot of people get frustrated when they’re unsuccessful in a process but we saw it as an opportunity to develop our relationship with Tim and with the business,” says Redman. “Inevitably there’s a bit of personal chemistry there as well.”
Lesson two: The relationship is more than just money
Personal bonds have featured prominently in many of Richards’ dealings with private equity, dating back to the company’s inception.
Originally a New York-based mergers and acquisitions lawyer and later an executive at Warner Bros, Richards set out on his own in 1999 with SBC International, now Vue. The company opened its first branch in Livingston, Scotland, the following year.
Private equity firm Boston Ventures agreed to provide initial funding in an “almost staged” approach; “prove the thesis out and there’ll be more there”, he recalls. “The juggling act is trying to get the money without the management and trying to get the management without the money.”
Richards speaks fondly of the rapport he established with these first backers, and having a relationship that goes beyond the boardroom is a theme that has dominated much of his history with private equity firms.
When the company was sold to Bank of Scotland’s Integrated Finance Unit (BOSIF) in 2006 for “well over a double [2x return]”, Richards found it difficult to part with his first financial sponsors. “It’s the nature of the private equity world – when things are going the absolute best you get a divorce. [That] is a hard word for it but it’s a parting of company and it’s emotionally difficult because it’s like you’re losing a friend.”
Lesson three: Tough love is part of a strong relationship
Despite Richards’ emphasis on interpersonal relations, he also recognises the value of tough love. BOSIF and Och-Ziff, which was brought on at a later stage to reduce the former’s investment, added “a huge amount of value to the company”.
“You can’t pick up your game if you have someone who’s along for the ride,” Richards adds. Vue looks to firms to provide input, challenge decisions and ask “informed, tough questions”.
However, the line between helpful and intrusive is easily overstepped. Richards recalls one “patronising” interview with a private equity professional at an unnamed firm in which he was asked where his children were schooled, what car he drove and about the state of his personal finances.
“It was offensive,” he says. “I want to work with [those] who recognise that it’s not about money, it’s about investing in people who genuinely love what they do.”
Four years after the BOSIF deal and with a clear double in sight once again, Vue’s management decided to sell their stake and reinvest. With over 500 screens across 58 sites, the difference between this deal process and those closer to the company’s inception was night and day.
“When you’re dealing with a brand-name law firm, accounting firm or investment bank, and you’re a £50 million company and Apple or IBM call, you know whose call they’re going to take,” Richards admits. But with 27 firms potentially interested Richards now had the luxury of conducting “mutual interviews”, and a £450 million sale to Doughty Hanson, now DH Private Equity Partners, followed.
Lesson four: Why private equity has its advantages
Richards has worked with almost every type of private equity investor, including venture capital, lower mid-market, upper mid-market and now direct investing pension giants. Talk inevitably turns to the public markets.
“If we thought there was an IPO window that opened up next year we’d look at it seriously,” he says. “I’ve seen dual tracks in the past where when you actually kick the tyres they weren’t really looking at an IPO and for us an IPO is a very credible, genuine option.”
Though Richards is confident that Vue could achieve its ambitions in the private or public domains alike, he remains enamoured with private equity’s ability to stay “under the radar screen”.
“Without exception, every single deal that we have done has been done through personal relationships, off-market and obviously they’ve all been proprietary deals. And when you can go in there, do a handshake and deliver something quickly it goes a long way.”