Warsaw-listed group Cinema City International (CCI) has acquired the Palace Cinemas’ chain, comprising 141 screens in 15 multiplexes in Central Europe, for €28 million. The deal strengthens CCI’s position in the Hungarian and Czech markets and adds Slovakia to its countries of operation, the company announced Thursday.
“Today we took a major step forward on our path to consolidating our position as one of the leading cinema operators in Europe,” said Moshe (Mooky) Greidinger, CEO of CCI, the largest multiplex cinema operator in Central and Eastern Europe and in Israel.
“This acquisition brings the total number of our screens to 866 and the number of multiplexes to 90,” Greidinger said. “In addition, we entered into our seventh territory, Slovakia, with three premiere locations in the capital city, Bratislava.”
CCI acquired 100 percent of the equity in four companies from Palace Cinemas (Central Europe), which operate eight multiplexes with 65 screens in the Czech Republic, four multiplexes with 47 screens in Hungary and three multiplexes with 29 screens in Slovakia. CCI plans to upgrade the acquired cinemas and to add a sufficient number of digital screens to meet ongoing demand for 3D digital movies.
“In the next two years we plan to invest in the acquired cinemas to upgrade their standards and to add a sufficient number of digital screens to meet what we expect will be the ongoing demand for 3D digital movies,” Greidinger said. “In the Czech Republic and in Hungary, we intend to integrate our organizations, applying our longstanding business model and management tools ... We believe this integration will also benefit our cinema advertising business.”
As part of the transaction, CCI also acquired the following subsidiaries of Palace Cinemas: Palace Cinemas Czech; Palace Cinemas Hungary; Palace Cinemas Slovak Republic; and Palace Multikino s.r.o. Although the purchase did not include Hungarian company Palace Mozi, which operates five multiplexes in Budapest and three multiplexes outside of Budapest, CCI has agreed to provide selected management services to Palace Mozi’s cinemas.
‘Positive’ jump to No.3
At the closing, CCI paid € 21.4 million to the seller and assumed €6.6 million in existing debt of the acquired companies. The acquisition was financed from CCI’s existing cash and from available credit lines.
Warsaw-based analyst for the Wood & Co. brokerage Dariusz Gorski said the transaction “looks positive” at first glance as it cements CCI’s dominant position in the CEE market and additionally makes it the No. 3 player on the European market (up from the No. 4 sport), perhaps allowing better terms from Hollywood studios.
“Synergies should be substantial given the inferior EBITDA margins of Palace Cinema's business (12.6 percent in 2008, 7.3 percent in 2009 and 10.6 percent in 2010 versus [CCI’s] respective margins of 21 percent, 22 percent and 24.5 percent),” Gorski wrote Thursday in a note to clients.
“The funding of the deal should not be a stretch given that [CCI] is relatively unleveraged (0.6 net debt/EBITDA) and, additionally, the balance of the payment for the Bulgarian real estate is due next year. On our tentative assumptions, the transaction puts Cinema City at a 9.1x EV/EBITDA multiple, marginally below the current multiple of 8.9x,” he continued. “This puts the company at a premium to its emerging markets peers' median of 7.3x.”
Palace Cinemas was founded by Arthur Goldblatt and V.J Maury with financial backing provided by Argus Capital Partners L.P. (“ARGUS”), an independent private equity funds focusing on the CEE region.
With total commitments in exces of €400 million in its funds, ARGUS has invested in 16 companies in the region. Through its eight regionally based investment professionals (Poland, Czech Republic, Hungary, Romania and the UK) ARGUS provides buy-out and expansion capital financing to the sellers of companies and management teams wanting to develop their businesses further.