After a spate of movie deals in 2004, the sector continues to pique the interest of private equity investors in the new year. New York-based private equity firm Quadrangle Group today announced an investment of $50 million (€38 million) in movie chain operator Cinemark, a portfolio company of Chicago buyout shop Madison Dearborn.
The $50 million investment represents approximately 10 percent of the $500 million equity check that Madison Dearborn wrote when it bought Cinemark from The Cypress Group in March 2004. The $1.5 billion acquisition, which included approximately $1 billion in new and assumed debt, represented over seven times the company’s trailing EBITDA of roughly $200 million.
According to documents filed with the Securities and Exchange Commission, Quadrangle’s stake was purchased directly from Madison Dearborn, which owns approximately 83 percent of the company, in exchange for one of the equity sponsor’s ten board seats. Peter Ezersky, managing principal of Quadrangle, will join Cinemark’s board of directors. Lee Roy Mitchell, chief executive officer and 16 percent shareholder, will continue in his role as chairman of the board.
Cinemark, the third largest movie operator in the US behind Regal Cinemas and AMC Entertainment, operates 302 theatres with 3,273 screens in North America. The company enjoyed a strong year in 2004, increasing revenues from $700 million to $775 million and earnings before interest, taxes, depreciation and amortization (excluding certain one time costs from the acquisition) from $99 million to $121 million for the nine months ended September 30, 2004.
Quadrangle’s minority investment in Cinemark reaffirms the appetite that private equity firms, once burned in movie chain deals just a few years back, have had recently for operators of the silver screen. In July 2004, rival movie chain AMC was purchased by JP Morgan Partners and Apollo Management, the original owner of the company, in a transaction valued at $2 billion. A month earlier, a consortium of buyers including Bain Capital, the Carlyle Group and Spectrum Equity Investors announced the $1.5 billion acquisition of the number 4 movie chain, Loews Entertainment, from private equity investors Onex Corporation and Oaktree Capital. All this activity comes several years after bankruptcies decimated the industry, highlighted by the Chapter 11 filing of industry leader Regal Cinemas, acquired by KKR and Hicks Muse in a $1.5 billion leveraged buyout.
Quadrangle, founded in 2000 by former executives of Lazard Freres, manages $2.5 billion in capital through a $1.1 billion private equity fund focused on the media and communications industries, Quadrangle Capital Partners, and a $1.4 billion distressed debt fund. The Cinemark investment was made through Quadrangle Capital Partners.