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Cinema Operator Industry

Sector Review
May 2014

INSIDE THIS ISSUE


1. Industry Overview
2. Major Industry Trends
3. Outlook and Growth
Opportunities
4. Public Comparable Analysis
5. Transaction Analysis

SECTOR REPORT

CINEMA OPERATOR INDUSTRY


INDUSTRY OVERVIEW
RECENT FINANCIAL PERFORMANCE
Global box office revenues continued to increase in 2013, reaching $36 billion after growing at a
5.2% CAGR from 2008 - 2013. Although North America accounted for the largest share of global
box office revenues in 2013 with $11.8 billion, its share declined from 38% in 2008 to 33% in
2013 and underperformed compared to the total global market with only a 2.4% CAGR. Overall
industry growth was driven primarily by rapid growth in emerging markets, including Latin
America (16.8%) and Asia Pacific (7.7%). More recently, during 2010 to 2013, the box office in
developed markets remained relatively flat (0.4% CAGR), while emerging markets grew at an
11.3% CAGR.
2013 global box office revenue increased 4.4% over 2012, led by strong growth in China (19.0%)
which reached $3.2 billion and maintained its position as the second largest market for movie
exhibition behind North America, as well as in Russia (7.0%) and Brazil (7.0%). In North America
and Europe, box office revenues grew 2.6%, slowing from their CAGRs over the 2008-2013
period. Economic worries and saturation of theaters impacted many developed markets,
including Italy (1.9% CAGR from 2008 2013) and Spain (0.1% CAGR from 2008 2013).
CHART 1: GLOBAL BOX OFFICE TRENDS BY REGION

CHART 2: GLOBAL BOX OFFICE TRENDS BY TYPE OF


MARKET

Source: PwC filmed entertainment sector outlook

Contact:
Gregory Bedrosian
CEO & Managing Partner
gbedrosian@redcapgroup.com

212.508.7111
Vikram Chandrasekaran
Vice President
vchandrasekaran@redcapgroup.com

212.508.7106
Redwood Capital
950 Third Avenue
Suite 2001
New York NY 10022
www.redcapgroup.com

www.redcapgroup.com

Source: PwC filmed entertainment sector outlook

PROJECTED PERFORMANCE
According to PwC, the global box office is expected to grow at a CAGR of 5.4% over the next five
years, reaching $44 billion in 2017. Box office growth is projected to outpace the 3.6% CAGR of
the overall filmed entertainment market during this time. Growth will continue to be driven
primarily by emerging market countries including China (14.8%), Russia (10.4%) and India
(10.1%). The overall BRIC market is expected to grow at a 14.4% CAGR through 2017 and to
account for 25% of the global box office, up from 18% in 2012. Both Russia and China are
experiencing significant growth in the number of screens and theaters and will continue to
generate increased box office revenues as the new theaters from recent investment come
online. China has 25,000 screens slated to open in the next five years, implying an average of 13
new screen openings per day.
The strong growth in global box office would increase the proportion of the box office revenue
to 42% of the total filmed entertainment revenue by 2017, from 40% in 2008. The shift is more
evident in the emerging markets, while in the developed markets, the revenue share of box
office to the total filmed entertainment sector is expected to rise only marginally.
The recent slate of films and lack of major blockbusters has hindered the growth of box office
revenues over the past few years. However, there are numerous major titles scheduled for
release in 2015 and 2016 which can potentially boost box office revenues in both developed
markets and emerging markets as demand for blockbuster US content continues to increase with
further globalization and access to content.

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CHART 3: BOX OFFICE GROWTH OUTLOOK BY REGION

CHART 4: BOX OFFICE GROWTH OUTLOOK BY TYPE OF MARKET

Source: PwC filmed entertainment sector outlook

Source: PwC filmed entertainment sector outlook

INDUSTRY DYNAMICS AND CONSOLIDATION


The cinema operator industry is highly concentrated as the top five countries represent approximately
58% of the global box office revenue and within each market, a small number of exhibitors represent a
majority of the revenue. This is consistent for both developed and emerging markets. In the U.S., the four
largest exhibitors (in terms of box office revenue) generated approximately 62% of the box office revenues
in 2012, up from 35% in 2000. As of December 2012, the top four U.S. exhibitors (out of a total 1,089
exhibitors) operated 50.1% of the total screens. Similarly, in China, the top five operators generated 70%
of the box office revenue in 2012. The UK is even more concentrated, with over 70% of the box office
revenue shared between the top three exhibitors in 2012.
As developed markets are further saturated and emerging markets continue to rapidly expand,
consolidation will further concentrate the sector both within and across markets. There has been
considerable consolidation in Europe over the last few years as well as in other parts of the world (see
Transaction Analysis). Rapidly growing markets such as Russia, projected to grow at 9.8% through 2017,
where in contrast to other major markets, the top five exhibitors comprised only 30% of the total screens
at the end of 2012, present a consolidation opportunity for western cinema operators whose revenues are
not growing and for Russian cinema operators vying for dominant market share.
CHART 5: LARGEST BOX OFFICES BY REVENUE, 2013

Source: Theatrical Market Statistics (2013) by MPAA

REVENUE MIX AND MARGIN ANALYSIS


Movie theaters generate revenue from three main sources: admissions, concessions and in-theater
advertising with admissions and concessions together generally accounting for 95% of a cinema operators
revenue. Admissions account for the largest percentage of revenue while generating the lowest margin.
For major cinema operators, concessions generate significantly higher gross margins (~80-85%) versus
admissions (~45-50%). Other sources of revenue, such as in-theater advertising generate even higher gross
margins, but usually account for less than 10% of a cinema operators revenue. For example, in 2013, Regal
Entertainment Group generated $2.1 billion in revenue from admissions, $817 million from concessions
and $162 million from other sources including in-theater advertising. Gross margin on admissions revenue
was 47.7%, while concessions generated gross margin of 86.3%.

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CHART 6: REVENUE BREAKDOWN (2013)

CHART 7: GROSS MARGINS FOR REVENUE STREAMS (2013)

Source: Company filings, Redwood Capital calculations


*For Carmike, Concessions revenues include other revenues

Source: Company filings, Redwood Capital calculations


*For Carmike, Concessions revenues include other revenues

MAJOR INDUSTRY TRENDS


ATTENDANCE
Global theater attendance (or admissions) has gradually declined over the recent years due to a decline in
developed markets such as North America and Europe, where in 2013 US admissions declined 1% and UK
admissions declined 4%. However, emerging markets such as China and Russia have shown strong gains in
theater admissions.
Within the U.S., theater admissions declined from a peak of 1.58 billion tickets sold in 2002 to 1.34 billion
in 2013. The rise in penetration of alternate distribution channels such as Netflix, Hulu and VoD (Video on
Demand), as well as reduced theatrical release windows have contributed to the decline in annual ticket
sales. Developed markets are also fully saturated with theaters and screens. This is in contrast to emerging
markets where large theaters with multiple screens are providing the movie-going experience to those
who have not had easy access in the past. In these less mature theater markets, alternate distribution
channels do not provide the same value as the movie-going experience and therefore are having less of an
effect on ticket sales.
According to Fitch Ratings, theater attendance is expected to remain under pressure in the years to come.
The growth in number of screens will begin to decline as markets become saturated with theaters. Access
to alternate distribution channels will continue to grow and will also put more pressure on theater ticket
sales.
CHART 8: LARGEST MARKETS BY ATTENDANCE, 2011

CHART 9: ADMISSIONS IN U.S./CANADA

Source: UNESCO Institute for Statistics (July 2013)

Source: Theatrical Market Statistics (2013) by MPAA

PRICING
Global movie ticket prices rose significantly in recent years, with ticket price growth outpacing the world
Consumer Price Inflation (CPI) index in several years. While the CAGR for world inflation for 2006-2011#
was 4.2%, ticket prices grew at a CAGR of 6.5% over the same period. Rising penetration of 3D screens
around the globe has allowed movie exhibitors to increase ticket prices. According to a report by MPAA,
the total number of 3D screens increased 17% in 2013. Similarly, other premium services such as larger
reclining theater seats, direct to seat concession offerings and tiered pricing for seat selection have
contributed to the increase in ticket prices. Ticket prices are also affected by the demand for theatrical
releases and years in which there are multiple blockbuster releases see higher ticket prices on average.
The rise in ticket prices accounts for the growth in box office revenues even though admissions are slowly
declining.

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CHART 10: TICKET PRICE GROWTH VS. CPI INFLATION, GLOBAL

Source: IMF, UNESCO Institute for Statistics (July 2013), #data for global ticket prices available as of 2011 only

There are numerous blockbuster films slated for release in the next few years and along with increasing
value being added to the movie-going experience, it is expected that movie exhibitors will be able to
command higher pricing in the years to come. Global ticket price growth is also expected to continue to
outpace broader inflation metrics.
SCREENS
The total number of cinema screens around the world grew 4% to 134k in 2013 after rising by 5.0% to 129k
in 2012. The U.S./Canada region had the highest number of screens in the world (42,814), followed by Asia
Pacific (41,206), Europe, Middle East and Africa (39,597) and Latin America (10,694) at the end of 2013.
Asia Pacific continued its double digit growth of 11%.
According to the MPAA Theatrical Market Statistics 2013 Report, over 80% of the worlds screens and at
least 50% of the screens in every region are now digital. 3D screens specifically continued to grow at 17%
in 2013 versus 25% in 2012 and 62% in 2011. While 3D screens comprise only 40% of the total digital
screens in U.S./Canada, which were early adopters of digitization, they make up 57% and 51% of the digital
screens in Asia Pacific and Latin America, respectively. During 2013, Latin America led the world in
conversion of screens to 3D, with 42.6% growth in 3D screens compared to 24.7% in Asia Pacific, 13.2% in
EMEA and 7.1% growth in U.S./Canada. Russia has seen strong growth since 2010 as the number of 3D
screens has almost doubled in 2 years (44.8% CAGR from 2010-2012) to 1,966, and further increased to
2,190 screens at the end of June 2013.
CHART 11: WORLDWIDE DIGITAL 3D SCREENS (UNITS)

Source: IHS Screen Digest, Theatrical Market Statistics (2013) by MPAA

The number of screens globally is expected to continue to grow, driven by emerging markets. Going
forward, the growth of 3D screens should also continue at a healthy pace, as the fastest growing movie
markets increasingly adopt 3D screens and new screens are built as digital 3D screens. In January 2013,
RealD (a leading global licensor of 3D technologies) and Karo Film (cinema operator in Russia with 197
screens) announced a deal to convert Karo Film screens to RealD 3D technology. Cinema operators are
also focusing on China and increasing the number of 3D screens. For instance, IMAX announced that it will
add screens in the country to raise its number of 3D screens from a current 80 to 217 in the next few
years. RealD has also reached agreements with cinema operators in 2013 to equip more movie screens in
China with its 3D technology.

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DIGITIZATION
Digitization was an important theme over the past decade, as a majority of theaters across the world have
converted their projection technology from analog to digital. In fact, in the U.S., all prominent studios have
announced that they will completely stop distributing movies over 35mm prints in major markets (the U.S.,
Canada, the UK, France, Australia and Japan) by the end of 2013 and worldwide by the end of 2015.
To keep up with these trends, theater operators have had to upgrade their display technology. The
number of digital screens have multiplied from 6,700 in 2007 to almost 111,809 screens in 2013, and
comprised more than 80% of the total screens at the end of 2013. The digitization wave was largely driven
by the developed markets of the U.S./Canada (93% digitized at the end of 2013). Digital conversion in
Northern and Western Europe stands at nearly 100% conversion with only a few remaining independents
to go.
CHART 12: CINEMA SCREENS BY TECHNOLOGY AND REGION (UNITS)

Source: Theatrical Market Statistics (2013) by MPAA

While developed markets led the way with respect to digitization, emerging markets have caught up
quickly too. Digital conversion activity in Asia-Pacific also remained strong, with a CAGR of 50.2% during
2011-2013. The pick-up in Latin America is even stronger, with a CAGR of 87.2% during the same period.
Similar trend can also be seen in Russia, with digital screens expected to register a CAGR of 36.8% during
2011-2013. As of June 2013, 76% of the screens in Russia are in digital format, which is expected to have
increased up to 84% by the end of 2013.
CHART 13: INTERNATIONAL DIGITAL SCREENS AS A PROPORTION OF TOTAL (UNITS)

Source: Theatrical Market Statistics (2013) by MPAA

THE RISE OF MULTIPLEX CHAINS


Since 2000, the trend towards theaters with multiple screens has rapidly penetrated the cinema exhibitor
market. According to data published by UNESCO in July 2013, the number of multiplex screens increased
from about 5,000 in 2006 to more than 51,000 in 2011, a CAGR of 47.2%. This is significantly higher than
the CAGR of 1.5% in total number of screens during the same period (from 95,000 in 2006 to almost
104,000 in 2011). In emerging markets, the penetration of the multiplex trend has been significant with a
rise of 100% from 2007-2011.

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GLOBAL SHARE OF MULTIPLEXES IN TOTAL SCREENS (%)
CHART 14: GLOBAL

CHART 15: EMERGING MARKETS

Source: UNESCO Institute for Statistics (July 2013), ex South Korea

This trend towards multiplexes is expected to continue as it presents an opportunity to grow ancillary
revenues, which cannot be generated in single-screen theaters. Multiplexes can exhibit a variety of other
filmed entertainment content as well as provide a valuable location for other services such as food and
beverage outlets increasing the overall quality of the movie-going experience.
Additionally, multiplexes also reduce costs having a higher number of screens in the same location enables
effective capacity management, depending upon the number and quality of movies released. Having more
than one screen at a location lowers the per-seat overhead costs for movie exhibitors. Moreover, with
screens having different seating capacities, theater operators get the flexibility to shift more popular
movies to screens with higher capacity and vice versa, thus increasing overall occupancy rates and helping
operators increase revenues in a cost-effective and manner.
THEATRICAL RELEASE WINDOW
Theatrical release window is the period between a movies release in theaters and its releases on alternate
media such as DVD, Blu-Ray, DTH and online streaming. Over the years, the duration of the window has
declined across the globe. In the U.S., the window has been reduced from over six months in 2000 to
approximately four months presently. In the U.K., box office contributes approximately one third of the
movies revenues; hence, a shorter window will ensure that the publicity costs incurred during the theater
release can also help improve sales in other viewing formats. In markets where box office revenues
comprise larger portions of total revenues, theatrical windows are generally longer. In most emerging
markets, the window is well above the global average. In India, box office forms about 74% of a movies
revenues, which explains why the window is significantly longer than in other countries. However, in
Russia, the window is well below the global average and hence proving to be a drag on movie exhibition
revenues. Going forward, it is expected that box office revenues will continue to contribute a lions share
of movie revenues (about 69% in 2015) in emerging markets. Consequently, we do not expect the
theatrical window to shorten significantly in coming years in developing countries.

OUTLOOK AND GROWTH OPPORTUNITIES


Cinema operator revenues continue to grow globally in both developed and emerging markets. Emerging
markets continue to see rapid revenue growth while developed markets see continued growth albeit not
as rapidly. There are growth opportunities for both developed and emerging markets as operators
continue to enhance the movie-going experience in the face of alternative viewing methods and add other
revenue generating services that will help improve margins as well. Additionally there is a significant
growth opportunity through acquisition.
Within the developed economies, the U.S./Canada region should continue to lead merger/acquisition
activity in the movie exhibition space. However, given that the industry has reached a high level of
concentration, most targets have been small players and as a result of which the average deal size could
see some moderation as compared to historical levels. Within emerging economies, there is an
opportunity for consolidation both within the given markets as well as from developed markets. Cinema
operators in developed markets seeking increased growth can potentially acquire smaller operators in
emerging markets. Russia specifically is an interesting market, which possesses high-growth characteristics
and very low industry concentration as compared to the global average. If the market opens up to foreign
cinema chains, competition could substantially increase in the sector and consolidation activity has the
potential to increase with leading operators reinsuring their market position.

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In emerging markets, there is another growth opportunity as theater owners look to improve screen
availability per capita, which is currently well below global average. Specifically, China (the second largest
movie market in the world by box-office) where the governments initiative of opening up the countrys
cultural industry will be the key driver of screen growth in the country. Mexican theater chain Cinepolis
recently announced its intention to expand its screen network to 500 screens by 2017, from 84 currently.
In markets such as India, where the government has a favorable foreign investment policy (100% foreign
direct investment is allowed in the movie exhibition industry), international players will see the rapid
growth as an opportunity.
Finally, both developed and emerging markets are adding new revenue generating services and enhancing
the movie-going experience to increase revenues and profits.
IN-THEATER ADVERTISING
Apart from ticketing and concessions, theaters also generate revenue from in-theater advertising.
Advertising in cinema screens is highly lucrative for brands because of the large and affluent demographic
of the audience and undivided attention from viewers leading to higher message recall rate compared to
television advertising. In addition, in-theater advertising via national theater chains offers advertisers the
option of displaying ads on a country-wide basis or locally in a particular region.
In the U.S., three of the four largest cinema chains (Regal, AMC and Cinemark) formed National Cinemedia
to take handle their in-theater advertising. With its lack of direct competition, direct access to the major
cinema theaters in the U.S. and increasing preference of advertisers for in-theater promotion, National
Cinemedia is poised for significant growth. According to the Cinema Advertising Council (CAC), in-theater
advertising in the U.S. has grown by 3.5% CAGR from $571mn in 2008 to $678mn in 2013, while box office
revenues for U.S. / Canada have grown 2.6% CAGR during the same period.
CHART 16: CINEMA ADVERTISING REVENUES AS % OF BOX OFFICE COLLECTIONS (U.S./CANADA)

Source: CAC data, Theatrical Market Statistics (2013) by MPAA

ONLINE TICKETING
A trend that has quickly established itself in the movie industry is the emergence of online ticketing.
Movietickets.com and Fandango are the worlds leading players in this industry and were created by the
theater operators themselves. Along with websites of theater chains, third-party ticketing websites that
partner with theater chains have also grown rapidly. According to Global Industry Analytics, the global
industry for online movie ticketing will reach $13.7bn by 2017. While Fandango provides access to 14,000
screens across the U.S., MovieTickets covers more than 22,000 screens in a number of countries across the
Americas and Europe.
SATELLITE DISTRIBUTION
With a majority of the theaters converted to digital technology, theaters can now use satellite distribution,
which completely bypasses physical distribution of tapes (analog or digital). Along with quality
improvements, satellite distribution also provides additional revenue opportunities such as exhibiting live
events from across the world and across genres (music, sports, etc.) for theaters. Event programming, such
as live concerts and Metropolitan Opera performances are now made possible by satellite delivery and
projection.
In an effort to improve film delivery options, movie exhibitors AMC, Regal, Cinemark and the studios
Warner Bros. and Universal Pictures formed the Digital Cinema Distribution Coalition (DCDC) in 2012.
DCDC helps individual theaters to implement technology upgrades for enabling satellite distribution. As of
now, the DCDC has covered 1,200 theaters and 17,000 screens across the U.S.

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ENHANCED THEATER EXPERIENCE: TECHNOLOGY AND PREMIUM OFFERINGS
Offering premium offerings keeps the demand for the movie-going experience up and allows exhibitors to
charge higher ticket prices. Admissions also allow exhibitors the opportunity to generate higher revenues
from concessions which provide higher margins.
The 3D format has witnessed tremendous growth in the last few years allowing movie exhibitors to charge
higher admission fees and provide movie-goers with an experience that they cant experience with
alternate media. With the advent of high quality 3D televisions, theater exhibitors are implementing other
enhancements. IMAX and RealD screens that are larger and have enhanced 3D technology offer an
experience that Netflix and VoD cannot compete with.
The next upgrade in the movie-viewing experience is 4D, where the audiences additional senses are
engaged. In addition to sight and sound, the audience also senses smells and movements along with the
movie. Because of the significant technology upgrades required, 4D movies are currently shown in
specially prepared theaters. As of August 2013, more than 10,000 4DX technology seats (Combines various
4D technologies, made by South Korea-based CJ CGV Co Limited) were available in 58 cinema sites across
16 countries.
Premium services go beyond movies and snacks. These includes pre-movie parties, luxurious seating,
smaller number of seats (giving the feel of private screenings and exclusivity), improved screen and sound
systems, wide menu of food and drinks served at the seat, availability of alcohol, priority seating and
various other experience enhancing offerings.
An upcoming trend in the movie industry is multi-tiered pricing, similar to Broadway shows, wherein
tickets for highly popular or blockbuster movies as well as for prime seat selection will be priced at a
premium. Multi-tiered pricing has the potential to allow blockbuster movies to stay in theaters for a much
longer time which will generate significantly higher revenues for theater operators.
To ensure higher concession revenues, theater operators have partnered with restaurants and coffee
chains (e.g. Odeons deal with Costa Coffee), expanding food and beverage offerings. Theaters also offer
new services such as gourmet food and alcohol as well as theater experience enhancing offerings such as
food being served directly to a patrons seat. Recently, AMC launched theaters that have reclining seats
and extensive gourmet food and beverage menu served directly to a moviegoers seat. Regal Cinemas
introduced RPX (Regal Premium Experience) which includes a bigger movie screen and a significantly
better sound system. The trend is not limited to just the U.S. as Shaw Theaters of Singapore hosts
Premiere shows that have pre-movie cocktail parties and food & drinks served during the movie. Regal
Cinemas also offered Mega Tickets, wherein Regal bundles in a host of products and services (entry to
pre-release screening, snacks, movie poster, DVD copy as soon as it is released) with the basic movie ticket
for a significantly higher amount.

PUBLIC COMPARABLE ANALYSIS


STOCK PERFORMANCE
CHART 17: RELATIVE PERFORMANCE OF INDICES, 01/01/2009 - 03/26/2014

Source: CapitalIQ, Redwood Capital


Note: Redwood Global Cinema Exhibitors Index excludes North American movie exhibitors

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From 2009 to present, the Redwood North America Cinema Exhibitors Index1 (NACI) and the Redwood
Global Cinema Exhibitors Index2 (GCI) have significantly outperformed the stock market, recording a CAGR
of 21% and 24.7% respectively as compared to a CAGR of 14.9% for the S&P 500 Index. Although the GCI
has given better point-to-point performance, the NACI has been more consistent, with outperformance
over the S&P 500 in four of the last five years. Largely, the movements of both of the cinema indices move
in the same direction as the S&P 500 Index. However, given that the cinema indices represent a smaller
and concentrated sub-sector of the overall entertainment industry, the changes in their value, both
positive and negative, are more volatile.
In Period 1 (from January 2009 to April 2009), all of the indices under consideration were fairly volatile.
This period can be further divided into two phases. In the first phase, which lasted for two months, all of
the indices contracted. After this, the markets staged a recovery and rose significantly in the next month.
In both phases, the NACI outperformed the other two and provided total returns of 36.1% in three and a
half months, compared to 5.5% for the GCI and -4.2% for the S&P 500 Index. The NACIs performance was
led by the two big theater chains, Regal and Cinemark, each returning more than 37% in the three months.
Over the last five years, the two cinema indices have moved largely in line, except for a fifteen month
period from July 2010 to October 2011. During this period, the GCI was significantly more volatile than the
NACI. It first grew by 38.8% in five months, only to fall by 24.2% afterwards, with a total return of 5.2%. In
contrast, the NACI remained relatively flat, growing slightly at 1.3%. Tokyu Recreation, a Japan based
movie exhibitor was the most volatile component of the GCI as it grew 67.7% and fell 40.7%, remaining
relatively flat for the period. At the end of the period, the GCI returned to the level of the NACI.
During the weak global macro-economic scenario in 2010 and 2011 the NACI (8.6%) managed to maintain
most of its outperformance over the S&P 500 (11.6%), while the GCI (16.4%) actually stretched its margin.
After 2011, in the two year period of 2012 and 2013, the cinema outperformed by a significant margin
with the NACI growing 76.4%, more than the GCI (54.5%) and the S&P 500 (44.2%). Because of this rise,
the GCI almost doubled its outperformance over the S&P 500 at 81.9% and the NACI more than tripled it at
95.1%.
TABLE 1: KEY VALUATION PARAMETERS

Source: Capital IQ, data as of March 26, 2014

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In the U.S./Canada region, valuations seem to be most influenced by two major factors: i) earnings growth
potential of the company, and ii) size and scale. The Canadian company Cineplex enjoys a valuation
premium to its competitors, given above-par revenue as well as EBITDA growth prospects. Moreover, it is
the least levered within the peer set, which implies higher debt-taking ability, a key for pursuing inorganic
growth opportunities. Looking specifically at the U.S. movie exhibitors (i.e. excluding Cineplex), the size of
the operator (in terms of number of screens) also seems to have an effect on valuation. Carmike Cinemas
has higher expected EBITDA growth in 2014 and a much lower debt burden than both Regal Entertainment
and AMC. However, both Regal Entertainment and AMC have higher multiples than Carmike Cinemas.
Regal Entertainment is the largest movie exhibitor in the U.S. with a network of 7,381 movie screens
across the region, while AMC has about 4,908 screens. Carmike Cinemas, on the other hand, operates
2,552 screens, which are almost one-third of Regal Entertainment and only half of AMC.
In Europe, while earnings growth is a determinant of valuations, investors seem to lay greater emphasis on
the debt burden of the company when deciding the premium/discount. Kinepolis Group trades at
substantial premium to its peers, given that it has the lowest leverage in the group. It should be noted that
strong EBITDA growth expected at Cineworld Group is reflective of its recent acquisition of Cinema City.
Valuations trends in the Asia Pacific are divergent, probably reflecting different dynamics and growths
across markets, which have highly varied characteristics. Companies in high-growth markets such as India
and China are valued with premiums to their peers (LTM basis), and leverage levels seem to be less of a
concern for investors. PVR Limited trades at significantly higher valuations than the peer group (ex-Bona
Film) despite having the highest net debt-to-EBITDA ratio. The rise in debt can be mainly attributed to the
companys acquisition of 95.27% stake in rival Cinemax India (69.27% stake in November 2012, and
another 26% in January 2013 through an open offer) for around INR5.4bn (approximately $98mn). The
benefits from the acquisition were two-fold for PVR: first, it cemented the companys position in the
Western India; and second, it helped the company achieve synergies and cost benefits from the larger
scale. The acquisition made PVR the largest multiplex operator in India with a network of more than 350
screens.
Going forward, the concentrated nature of the movie exhibition industry is likely to further intensify, as
smaller players become acquisition targets given the expected rise in funding requirements, driven by
higher spending on technology and improving the movie-going experience. Valuations should remain
favorable for participants with large scale and a strong market position, especially those that are well
positioned to exploit growth opportunities. In addition, an edge in negotiating contracts with the studios
as well as concession vendors, and the ability to quickly absorb newer technologies of movie exhibition
should further boost valuations. Among smaller players, valuations could display mixed traits. Players who
fail to adapt to the new trends in technology could see their valuations come under pressure. However,
valuations should remain buoyant for those that possess either strong financials or distinct advantages
such as favorable vendor contracts, prime locations etc., as acquirers continue to seek targets with the
most potential.

TRANSACTION ANALYSIS
MERGERS AND ACQUISITIONS
TABLE 2: DEAL ACTIVITY SUMMARY, 2009 TO 2014 YTD

Source: Capital IQ, *YTD

The mergers and acquisitions activity in the movie exhibition industry witnessed a buoyant environment
during 2009-2013, with activity picking up in the latter half of the period. The activity was typically
characterized by one or two large deals (over $500m) accounting for a majority of the transaction value
every year, with numerous smaller deals comprising the rest.

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The deal volume displayed a rising trend from 2009 to 2012, the highest deal activity being recorded in
2012. In terms of deal value, 2010 topped the list with $4.7bn worth transactions recorded. 2010 also
witnessed the best median deal value ($31.5mn) and a sharp recovery in the transaction multiples from
2009. Of note, the acquisition of Tanjong plc the owner of the Malaysian theater chain TGV Cinemas by
Usaha Tegas Sdn. Bhd for $3.2bn accounted for 68% of the total deal value in 2010. Moreover, Tanjong plc
is not a pure-play movie exhibitor, but rather a conglomerate entity with interests in the power
generation, gaming and property investment businesses. TGV Cinemas comprised approximately 5% of the
total revenue of Tanjong. Excluding this deal, the total value of deals comes to $1.5bn, which represents an
impressive two-fold growth over 2009.
The strong growth in 2010 was followed by a sharp dip in activity in 2011, as transaction value fell 88.5%. A
likely explanation being a tighter global capital market, especially in the developed markets, where impact
of the Eurozone debt crisis and the deterioration in the U.S. economy affected deal velocity. Moreover,
with discretionary spending under pressure due to rising unemployment, investors and theater owners
were both skeptical to invest money into the industry.
The revival in 2012 was impressive, with deal volumes up almost 20% and deal value rising almost six-fold
to $3.7bn. Along with the volume rise, the average deal size increased materially to $148.5mn as total deal
value reached $3.7bn from $547mn in 2011. Excluding the Tanjong-Usaha transaction in 2010, the year
2012 recorded the highest value of transactions during the last five years. The pick-up in deal activity was
led by the U.S., where deal volumes doubled to 29 as compared to 14 in 2011, as favorable interest rates
and gradual improvement in economic indicators improved investor confidence. One factor to notice is the
reduction in the median deal value, implying that there were higher numbers of small-ticket transactions
during the year 2012 as compared to 2011. The year 2012 was characterized by one of the most prominent
deals in recent times: the acquisition of U.S.-based multiplex operator AMC Entertainment Holdings by the
Chinese group Dalian Wanda for $2.9bn. Interestingly, the valuation multiples TTM revenue multiple of
1.01x and EBITDA multiple of 7.93x were both below the respective industry medians. The likely reason
for the discounted valuations was AMCs highly levered balance sheet. Before the IPO in May 2012, AMCs
total borrowings amounted to $2.2bn against shareholders equity of $0.15bn, implying a high debt-toequity ratio of 14.3x (as of March 2012). Post the IPO, the ratio improved significantly, and according to its
Q3 2013 filing, stood at 2.58x. In the high-growth markets, a key deal was the acquisition of a controlling
stake in Russias Karo Film by a consortium of investors in December. The amount of the acquisition was
undisclosed, with industry estimates pegging the deal value at below $250mn to around $450mn (see
below).
The momentum built in 2012 faded slightly in 2013, with total transaction value coming in below the prioryear level. Despite the decline, the year was still the second best in the last five years in terms of deal
volume, with the median deal size increasing over two-fold from 2012. Valuation multiples, however,
contracted. The year witnessed the largest deal in Europe in the last five years, where OMERS Private
Equity and Alberta Investment Management Corporation (AIMC) acquired U.K.-based theater operator
Vue Entertainment for $1.5bn. The deal was valued at a premium to the industry median, at a TTM EBITDA
multiple of 8.50x compared to the industry median of 7.6x. We believe that Vues leading market position
and strong performance during 2010-2013 on the back of strategic acquisitions around Europe resulted in
the premium valuations.
2014 began on a modest note, with seven deals in the first three months. Moreover, except for the
Cinema City acquisition, sized at $825mn (see below for details), the rest were low-ticket transactions,
falling in the sub- $10mn category.
TABLE 3: DEAL BREAKDOWN BY SIZE, 2009 TO 2014 YTD

Source: Capital IQ, *YTD

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The last five years saw a negligible volume of big-ticket transactions, with only three disclosed deals over a
value of $1bn: Tanjong-Usaha in 2010 for $3.2bn, AMC-Wanda in 2012 for $2.9bn, and Vue-OMERS-AIMC
in 2013 for $1.5bn. The only large deals apart from these were in 2010, when Doughty Hanson & Co.
purchased Vue Entertainment for $730mn and in 2014 when Cinema City was acquired for $825mn.
Excluding these, all deals have been below $500mn in size, with the sub-$100mn category comprising a
majority of the deal volume in all years. As a proportion of total deals, the number of deals in the category
increased from 34.5% in 2009 to 45% in 2013. This could be attributed to the industry structure, which is
very concentrated at the top and highly fragmented below. In almost every major market in the world, the
top four or five players comprise a significant proportion of the screen network as well as total industry
revenue. As such, most targets are very small players, which inevitably results in an increase in small-size
mergers/acquisition deals.
THE AMC-WANDA DEAL, $2.6BN, 2012
In May 2012, Wanda announced the acquisition of the second largest movie chain in the U.S., AMC
Entertainment, and the deal was successfully completed in August. At the time of acquisition, AMC had
over 5,000 screens spread across 346 locations in the U.S. The deal valued AMC Entertainment at $2.6bn,
with a commitment of another $0.5bn by Wanda to i) lower AMCs heavy debt burden, and ii) invest in
theater improvements including upgrading screen technology and increasing options for food and
beverage.
The prominence of the deal is reflected in the fact that it was the largest acquisition by a Chinese entity in
the U.S. entertainment industry. Wanda took on a debt of $1.9bn to complete the acquisition. The
company, which claims to have a share of over 15% of the total Chinese box office, said that the deal was
in line with its strategy of international expansion. The deal would also enable Wanda to improve its
negotiating power with major studios, considering its leading position in two of the worlds largest movie
markets. The deal rationale was questioned by industry experts, considering that overall movie attendance
numbers in the U.S. had reached a low in 2011, and that AMC had a highly levered balance sheet. While an
analyst labeled it as a vanity purchase, some experts opined that it would have made better sense had
Wanda invested the same amount in creating a dominant presence in the high-growth Asia/Pacific market.
THE KARO FILM DEAL, 2012
In December 2012, a consortium comprising of Baring Vostok Private Equity, UFG Private Equity and the
Russian Direct Investment Fund acquired a controlling stake in Karo Film, which is one of the top three
movie theater chains in Russia. Paul Heth, a highly experienced and reputed industry figure, was named
the CEO of Karo Film. The investment was done with an aim to strengthen Karo Films market position
through upgrades to exhibition technology, enhance offerings on concessions stands and improve
efficiency. The investors also pumped in an additional $100mn to implement the proposed development.
Industry sources cited that the planned space expansion at Karo Film would result in the largest expansion
implemented in the Russian cinema industry.
THE VUE-OMERS+AIMC DEAL, $1.5BN, 2013
OMERS Private Equity Inc. and Alberta Investment Management Corp. announced the acquisition of Vue
Entertainment, Europes leading cinema operator, for $1.5bn in June 2013. The deal was completed in
September 2013. Doughty Hanson & Co had purchased Vue in 2010 from the companys management and
an investment fund named Och-Ziff Capital Management Group for $730mn. Since then, Vue had
sharpened its focused on growth through various strategic acquisitions across Europe, which helped it
nearly double its screen count from 678 to 1,321 across 146 cinemas. A strengthened balance sheet as a
result of the capital infusion, and an already leading position in the market further increased Vues
financial ability to harness growth opportunities in Europe, both organic as well as inorganic.
THE CINEMA CITY-CINEWORLD DEAL, $0.8BN, 2014
In January 2014, Cineworld Group acquired Poland-based Cinema City International for a consideration of
503.4mn ($825mn) in a mixed stock-and-cash deal. Cineworld paid 272mn in cash and issued 24.9%
equity of the combined entity (worth 231.4mn at that time), and launched a 110mn rights issue to partfinance the acquisition. Cinema City operates movie theaters in Israel and Central and Eastern Europe and
has 966 screens in 99 multiplexes. The acquisition gives Cineworld access to attractive movie markets in
the CEE region which has low multiplex penetration. The combined entity will be Europes second largest
movie theater chain with 1,852 screens across 201 locations. This deal followed Vue Entertainments
acquisition of the Polish multiplex operator, Multikino, for 48mn ($65.3mn).

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TABLE 4: DEAL BREAKDOWN BY REGION, 2009 TO 2014 YTD

Source: Capital IQ, *YTD

By geography, the global merger/acquisition activity was largely concentrated in the developed markets in
the last five years, with the U.S./Canada region being most active in the recent past. In the region,
consolidation activity has continually increased over last five years, with the region recording the highest
number of deals across all geographies every year from 2010 onwards. We believe that an attractive
interest rate climate and improving investor confidence due to traces of economic betterment fostered
deal activity in the region. In Europe, deal activity was largely consistent over the last five years, with an
average of 12-14 deals per year despite the tough economic climate and the prevalent debt crisis. 2014
was no different, with U.S./Canada and Europe witnessing most of the deal activity so far, with the sole
high-value transaction being executed in Europe.

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Source: Capital IQ (in $ millions except multiples)

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PRIVATE PLACEMENTS
TABLE 5: PRIVATE PLACEMENTS SUMMARY, 2009 TO 2014 YTD

Source: Capital IQ, *YTD

From 2009-2014 (YTD), the total funds raised from private placements in the movie exhibition business
reached $5bn, with deal activity led mainly by the Asia-Pacific region. Of the 47 deals in the last five years,
32 deals were by entities in Asia-Pacific. We believe that an uncertain equity market and tighter lending
environment given worries of slowing economic growth could have prompted players to opt for private
investments. Each year, the composition was similar: a couple of sizeable debt placements, and various
small-sized equity placements.
The year 2009 was the largest in terms of deal value, comprising 30% of the total placements since 2009,
and was dominated by private placements in corporate debt of U.S. companies. All of the debt offerings
during the year were issued with an aim of refinancing existing debt and/or extending the debt maturities.
The largest offering completed was by AMC Entertainment which raised a gross of $600mn through senior
notes at 8.75% per annum due 2019 to complete the repayment of its $250mn senior notes bearing an
interest rate of 8.675% due 2012. With a similar purpose, Cinemark raised a gross of $475mn at 8.625% to
finance the repurchase of its more expensive 9.75% senior discount notes, while Regal Cinemas
Corporation raised $400mn to pay off some of its credit facilities.
In 2010, AMC Entertainment issued another $600mn debt offering, the proceeds of which it used to pay
back $325mn of its 9.75% Senior Subordinated Notes due 2020, as well as $240.8mn of the 12% Senior
Discount Notes due 2014 issued by its owner, Marquee Holdings. The remaining deals during the year
were very small (average deal size of $25mn), and were largely concentrated in China.
Private placement activity improved in 2011, and peaked in terms of deal volume (28% of total). The
prevalent recessionary environment in the U.S. as well as the debt crisis in the Eurozone had made the
public markets unreceptive, and companies were fearful of a poor response to public offerings in such an
atmosphere. These circumstances prompted theater operators to issue private debt offerings. The largest
offering was completed by Odeon & UCI Finco plc, a leading British cinema operator, which included
Senior Secured Notes worth 300mn ($485mn) at 9.0%, and Senior Secured Floating Rate Notes worth
200mn ($282mn), both due 2018. The company raised the funds for i) refinancing existing debt to reduce
the burden of interest payments on the bottom-line, and, ii) strengthening its financial position with an
aim to expand its geographical reach across Europe as well as other high-growth movie exhibition markets.
The company had initially planned an IPO to raise the funds; however, it used a private placement, likely
due to the weakness in global equity markets during that time. Similarly, Cinemark raised $200mn in June
2011 at 7.375%, to pay back its term loan of $157mn and planned to utilize the rest for general business
purposes. Among equity funding, a key deal was an investment of $69mn by Tencent Holdings in Huayi
Brothers Media Corporation (both based in China) in an effort to diversify the formers presence in the
fast-growing Chinese entertainment industry.
While the total funds raised in 2012 were lesser than those in 2011, the year was particularly important
because of the change in rationale of raising the funds. Until 2011, the key broader rationale behind
corporate debt offerings was to reduce interest burdens. In 2012, companies borrowed debt not only to
retire expensive debt but also to fund their inorganic expansion plans. In December 2012, Cinemark
completed the issue of $400mn senior notes due in 2022 to repay existing debt and to acquire 32 theater
locations from Rave Real Property Holdco, LLC for $240mn. The acquisition helped Cinemark achieve cost
synergies, as a larger footprint improved its negotiating power with concession vendors and provided the
company with a larger number of venues for on-screen advertising revenue. In another deal, Carmike
Cinemas issued bonds worth $210mn in April 2012 to replace an existing loan with strict covenants
allowing for more funds for capital expenditures and bolt-on acquisitions.

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A similar trend was also evident in the equity space. The largest equity deal in 2012 was the investment in
Russia-based Karo Film by a consortium of investors in December, which included an additional $100mn to
finance working capital requirements and support the expansion of its screen network in the next three
years. In another deal, U.K.-based Cineworld Group completed a private placement of 6.4mn equity shares
in December 2012, raising 16m ($25mn). The Group employed the proceeds to partly fund its acquisition
of Picturehouse Cinemas, which it purchased for 47m ($76mn) the same year, the remaining 31mn
being funded by existing debt facilities. The acquisition added 60 screens across 21 locations to
Cineworlds existing network, and also added its distribution arm, Picturehouse Entertainment, to its
business, providing a degree of vertical integration. Of note is the fact that Picturehouse Cinemas was the
first major theater chain in the U.K. to have upgraded its entire screen network to digital projection.
The year 2013 witnessed a dip in private placement activity, most likely due to an improvement in global
equity markets and the reduction in uncertainty over the economic growth potential of emerging markets.
Nonetheless, companies remained keen to take advantage of the sustained low interest rate environment
to extend the debt maturities and access cheaper funding. The biggest debt placement was Cinemarks
$530mn issue of 4.875% Senior Notes due 2023 to pay back the existing Senior Notes of $470mn (issued in
June 2009), which bore an interest rate of 8.625% and were due in 2019. In equity, the largest placement
was achieved by Indias leading premium multiplex chain, PVR Limited, which received $47.5mn from
Multiples Alternate Asset Management Private Limited and existing investor L Capital Eco Ltd. (the PE arm
of luxury behemoth LVMH) to fund its acquisition of its key competitor, Cinemax (discussed above). So far
in 2014, the private placement space has witnessed two deals, that of Brazilian A Rede Cinesystem
Cinemas raising $17mn, and SMI Corp raising $15mn.

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Source: Capital IQ (in $ millions)

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CAPITAL RAISE: PUBLIC DEBT OFFERINGS
CHART 18: DEAL VOLUME, 2009 2014 YTD

CHART 19: DEAL VALUE ($MN), 2009 2014 YTD

Source: Capital IQ, *YTD

Source: Capital IQ, *YTD

In the last five years, there were 15 disclosed public debt offerings in the global movie exhibition industry
amounting to a total of $2.6bn. Of these, the U.S./Canada region had 8 offerings and Asia-Pacific witnessed
6 offerings, with the remaining offer issued in Europe. In terms of value also, the U.S./Canada region was
far ahead, with the total offerings amounting to $2.3bn. The offering in Europe was sized $100mn, while
those in Asia-Pacific amounted to $184mn. A sharp disparity in the average debt offering within regions is
evident: although Asia-Pacific comprised 40% of the total deals, it made up for just 7% of the total debt
raised. In contrast, the U.S./Canada region comprised 53% of the deals but formed 89% of the total debt
offering value.
The year 2009 saw no public debt offerings by movie exhibitors, as these players preferred to opt for
private placements considering the conservative sentiment prevailing in public markets. In 2010, the
overall offering size was recorded at $301mn for 2 deals. The major offering was by Regal Entertainment
Group ($275mn in August) to refinance expensive credit and secure funds for other corporate purposes.
The second one was issued by the Korean company CJ CGV Co Limited, which raised $26.5mn in October
for working capital financing. The activity in 2011 was once again led by Regal Entertainment Group,
raising $156.8mn in January 2011 and another $104.5mn in February 2011, both at an interest rate of
9.125%, to pay back the more expensive debt on its books.
In 2012, the offer rationales remained largely unchanged. Two Asian companies, CJ CGV Co Limited
($26mn in June) and Thailand-based Major Cineplex Group ($31mn in August) successfully raised money
with similar purposes. However, the biggest offering was that of Belgium theater operator Kinepolis
Group, which raised approximately $100mn in March 2012. The significance of the deal was that, apart
from the debt repayment, Kinepolis had raised the funds to be employed for capital expenditures and
financing of strategic acquisitions. The indication was an important positive, considering the economic
slump in the region.
2013 witnessed a revival in public debt offerings, as companies sought to take advantage of the sustained
low interest rate environment to extend the debt maturities and access cheaper funding. In May, Regal
Entertainment Group issued senior notes worth $250mn at 5.75% due 2023, and used $213.6mn of the
proceeds to extinguish the debt on its Senior Notes that had an annual interest rate of 9.125%. In addition,
companies also accessed debt to pursue inorganic growth. In January 2013, Regal Entertainment Group
issued $250mn worth of Senior Notes at 5.75% per year due 2025 to fund its acquisition of Hollywood
Theaters. In April 2013, Regal Entertainment Group completed the acquisition of 513 screens across 43
locations of Hollywood Theaters for $191mn in cash and also took over the latters lease obligations worth
$47mn. Similarly, in October 2013, Cineplex issued convertible debentures amounting to $100mn to repay
the debt utilized for the acquisition of 24 theater locations from Empire Theaters Limited. Cineplex
completed the acquisition for a consideration of approximately $194mn in October 2013.
In 2014, companies have continued the trend of the previous year, i.e. refinancing debt to extend
maturities and lower the interest burden. There have been two such public offerings this year to date. In
March 2014, Regal Entertainment issued $775mn principal amount senior notes due 2022 with a coupon
rate of 5.75%. The company planned to use the proceeds from this issue to repay multiple outstanding
senior notes worth approximately $761mn with coupon rates varying from 8.625% to 9.125% and due
between 2018 and 2019. Similarly, AMC issued senior notes of $375mn at a coupon rate of 5.875% in
February 2014 and used the proceeds to repay 8.75% Senior Notes due 2019.

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Source: Capital IQ (in $ millions)

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TABLE 6: PUBLIC EQUITY OFFERINGS SUMMARY, 2009 2014 YTD

Source: Capital IQ, *YTD

Out of the public offers executed since 2009, almost two thirds by volume were equity offers. In all, $2.6bn
was raised by the movie exhibition industry via equity over the last five years. By geography, Asia-Pacific
and U.S./Canada led the activity, collectively comprising almost 90% of the total equity offer volume and
more than 90% of the total offer value. The majority of the activity was concentrated in Asia Pacific and
U.S./Canada because these regions are the biggest markets for movies, Asia Pacific by admissions and
movies produced, and U.S./Canada by box office revenue. Europe, another major region for the movie
industry, saw the remaining three offers. Latin America and Africa, in comparison, are comparatively
smaller markets on a global scale, and saw no public offers after 2008. Contrary to the trend in the
mergers/ acquisitions, a significant proportion of the equity offers during the last five years (36%) crossed
the $100mn mark.
In terms of total offer value, the equity public offer market saw falling numbers from 2009 to 2012, similar
to the trend in offer volumes. With seven offers, the equity public offer market was most active in 2009. In
the period under consideration, 2009 also led in terms of total offer value with $592.07mn raised, closely
followed by 2013 at $552.3mn. The year was characterized by the Cineplex Inc. IPO which collected
$152mn, and was carried out to facilitate an exit of investors. In 2010, the total offer value went down in
the same measure as the number of offers, as the average offer value for the two years remained nearly
the same. The offer volume declined significantly in 2011. However, the year delivered the highest average
and median offer values during 2009-2012, on the back of two offers by Cinemark Holdings each sized at
approximately $200mn each. The total value of public equity offers fell drastically in 2012, primarily due to
the uncertainty around the globe due to the European sovereign debt crisis. With confidence in the equity
markets growing, equity offers recovered spectacularly in 2013, as the number of offers grew 66% and the
total offer value went up almost seven times.
2014 shows that the momentum for equity offerings started in 2013 is continuing. In just three months,
the movie exhibition industry has raised almost the same amount of money as was raised in the entire
year of 2013. There have been two large offers to date. Poly Culture Group raised $331mn through its IPO
and the Cineworld rights issue which was carried out to partly pay for its acquisition of Cinema City.
Because both offers to date have been big, the average and median offer value for the year to date are the
highest since 2009.
An interesting point to note for years 2012 onwards is the difference in the rationale of companies in
developed economies and emerging economies for raising money through equity offers. With the
economy showing signs of recovery, companies in developed markets such as U.S./ Canada and Europe
raised money mainly for expansion (both organic as well as inorganic) e.g. IPOs of Everyman Media Group
and Digital Cinema Destinations and the rights issue by Cineworld Group. Conversely, money raised in Asia
Pacific region was primarily for debt repayment, e.g. rights issues of Reliance Mediaworks ($94mn in 2013)
and Fame India ($18mn in 2012). This can be attributed to the high interest rates prevailing in India due to
monetary tightening by the central bank to combat inflation.
Over the last five years, the market for IPOs has been largely stable. Eight companies in the sector
completed their IPOs during this period, raising almost $800mn. A majority of the IPOs were for expansion,
including the Poly Culture Group IPO of $331mn. Despite this, two of biggest issues in the period were for
debt repayment (AMC) and to facilitate an exit for investors (Cineplex). Geographically, the split is similar
to total equity offerings with most of the offers being in U.S./Canada or in Asia Pacific with the lone offer in
Europe in 2013. The year 2013 had the highest total offer value raised via IPOs, mainly from the AMC
Entertainment offer ($369mn), followed by 2009 at $331mn.

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The FPO space was also fairly active, with five issues completed during 2009-2013 to raise $410mn, all of
which happened in U.S./Canada. Carmike Cinemas and IMAX Corp were the most active with FPOs. While
Carmike Cinemas raised a total $133mn in 2012 and 2013 (purpose unspecified), IMAX Corp. raised
$120mn in 2009 purely for debt repayment. Digital Cinema Destinations also had a FPO issue in 2013, 18
months after its IPO in 2012 (purpose unspecified). In contrast to U.S./Canada, Asia Pacific region saw five
rights issues since 2009 and a total of $410mn was raised. The biggest rights issues in this period were the
Cineworld issue, which raised $184mn in 2014 and the Amalgamated Holdings issue of $99mn to build a
cash position for expansion. Other major issues were Reliance Mediaworks and Fame India, as mentioned
above.
It must be noted that Cinemark Holdings was the most active company in the last five years as it
approached the market 5 times with equity public offers worth $722mn (making up 28% of the total equity
investment offered in this period). However, all of the equity offers were secondary sales of shares by its
major investor Madison Dearborn Partners LLC (an LBO investor). Through these offers, Madison Dearborn
sold more than 38mn shares over three years from 2009-2011 and exited its investment in Cinemark
completely. Cinemark did not receive any funds from these offers.
AMC ENTERTAINMENT IPO
AMC Entertainment was acquired by Wanda in May 2012, in a deal that valued AMC Entertainment at
$2.6bn and Wanda took on $1.9bn of debt to complete the deal. In accordance with terms of the
acquisition, Wanda initiated an IPO for AMC in 2013 with the objective of reducing AMCs debt burden of
over $2.2bn (as of March 2012). In the IPO, 18.4mn AMC shares were offered in a price band of $18-20.
Including the option to issue an additional 2.6mn shares, AMC was able to issue 21mn shares overall to
raise $369mn. The price valued AMC Entertainment at $1.7bn at the time of listing. After the issue,
Wandas shareholding in the company was reduced to 80%. AMC had a good debut on the markets with
the stock rising 5% on the day of listing. Since listing, the stock has risen a further 10% and currently trades
around $24, at a 1-year forward P/E multiple of 23x (source: Bloomberg).
POLY CULTURE GROUP IPO
Chinese state owned Poly Culture Group is the worlds third-biggest auction house by revenue after
Sothebys and Christies. It also had business interests in movie exhibition through 31 theaters and 17
cinemas and generated more than half of its revenues from managing movie theaters. In March 2014, the
company approached the markets with its IPO, offering to sell 70.7mn new shares and 7.1mn shares
owned by its parent company in a price band of $28.20-33.00. The response to the issue was
overwhelming; with the retail tranche oversubscribed 600 times, which allowed the company to sell the
shares at the upper end of the price band. Poly Culture planned to use half of the funds for its auction
business and the other half for the movie exhibition business. In line with the response to the IPO, the
shares were highly sought on the public markets too, and increased 29% on its listing day.
BONA FILM GROUP AND MIDVALLEY ENTERTAINMENT IPOS
Bona Film Group is a film producer, distributor and exhibitor in China, and operated 6 theaters at the time
of the issue. In 2010, Bona filed for an IPO on the NASDAQ Stock Exchange to raise about $80mn by
offering 11.74mn shares in a price band of $7-8. However, it was actually able to raise $100mn as the issue
price was decided at $8.5. Midvalley Entertainment is an Indian company that, like Bona, produces and
distributes movies and operates movie theaters. At the time of its IPO, 65% of its revenues were generated
from film exhibition. In 2011, Midvalley approached the markets and raised $13mn; however, market
reactions were slightly negative owing to the companys business being concentrated in the southern part
of India, and the high pricing of the issue. Proceeds from both issues were specified to be used for business
expansion purposes.
RELIANCE MEDIAWORKS AND FAME INDIA RIGHTS ISSUES
In recent years, companies in India have been trying to deleverage, due to the high interest rates
prevailing as a result of the central banks efforts to control inflation. In 2013, Reliance MediaWorks came
up with a rights issue to raise $94mn, offering existing shareholders 13 shares for every 4 held, with the
proceeds to be used for debt repayment. Initial market reactions to the offer were positive and the stock
rose as much as 2.7% on the day it was announced, which helped the company raise $91mn from the
issue. In 2012, Fame India (now a part of Inox Leisure) also launched a rights issue offering its shareholders
the option to purchase 58 shares for every 100 held by them. Through the issue, Fame tried to raise
$18mn by issuing 20.3mn shares with an intention to reduce debt. Once again, the market reaction to
news of the issue was positive, and the stock ended 5% up on the day of announcement.

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Source: Capital IQ (in $ millions)

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ADDITIONAL NOTES
1
THE REDWOOD NORTH AMERICA CINEMA EXHIBITORS INDEX
The Redwood North America Cinema Exhibitors Index is a market capitalization weighted index, which
purely tracks movie exhibitors. Currently, there is no other index available that serves this purpose. This
index comprises of the top companies in U.S./Canada engaged primarily in the business of operating movie
theaters. The current constituents of the index are: AMC Entertainment Holdings Inc. (AMC:US), Carmike
Cinemas Inc. (CKEC:US), Cinemark Holdings Inc. (CNK:US), Cineplex Inc. (CGX:CN), IMAX Corp. (IMX:CN),
Reading International Inc. (RDI:US) and Regal Entertainment Group (RGC:US). All the data has been
sourced from Capital IQ.
2

THE REDWOOD GLOBAL CINEMA EXHIBITORS INDEX


The Redwood Global Cinema Exhibitors Index is a market capitalization weighted index, which tracks
movie exhibitors across the globe excluding players in the U.S./Canada region. The current constituents of
the index are: Cineworld Group plc (LSE:CINE), Kinepolis Group NV (ENXTBR:KIN), Global City Holdings N.V
(WSE:GCH), AFM Uluslararasi Film Produksiyon A.S. (IBSE:AFMAS), Amalgamated Holdings Limited
(ASX:AHD), CJ CGV Co., Ltd. (KOSE:A079160), Major Cineplex Group Public Company Limited (SET:MAJOR),
PVR Limited (BSE:532689), Inox Leisure Limited (BSE:532706), Tokyu Recreation Co., Ltd. (TSE:9631) and
Bona Film Group Limited (NasdaqGS:BONA). All the data has been sourced from Capital IQ.

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Cinema Operator Industry


Sector Review
May 2014

REDWOOD CAPITAL GROUP IS AN INVESTMENT BANKING FIRM SERVING THE


TECHNOLOGY, COMMUNICATIONS, MEDIA, BUSINESS SERVICES AND OTHER GROWTH
INDUSTRIES. THE FIRM FOCUSES ON MERGERS & ACQUISITIONS, CORPORATE FINANCE,
RESTRUCTURING AND VALUATION ADVISORY SERVICES FOR ITS CLIENTS WORLDWIDE.
New York

Los Angeles

950 Third Avenue Suite 2001


New York NY 10022

1100 Glendon Avenue Suite 905


Los Angeles CA 90024

Tel: +1 212 508 7100

Tel: +1 310 696 4001

Fax: +1 212 508 7102

Fax: +1 310 507 0263

Geneva

Milan (Strategic Alliance)

17 Rue du Cendrier
1202 Geneva Switzerland

Livolsi & Partners Largo Augusto, 3


20122 Milan Italy

Tel: +41 (22) 518 07 83

Tel: +39 (02) 777 991

Fax: +41 (22) 839 72 49

Fax: +39 (02) 777 993 90

Paris (Joint Venture)

London (Joint Venture)

8 rue Halvy
75009 Paris France

42 Brook Street London W1K 5DB


United Kingdom

Tel: +33 1 58 18 39 00

Tel: +44 20 7112 7777

Fax: +33 1 53 43 09 76

Fax: +44 20 7900 2329

Munich (Joint Venture)

Berlin (Joint Venture)

Theatinerstr. 42
80333 Mnchen Germany

Torstr. 33
10119 Berlin Germany

Tel: +49 89 1490 265-25

Tel: +49 30 60 9889 070

Fax: +49 89 1490 265-13


www.redcapgroup.com
For Information:
Gregory Bedrosian

Vikram Chandrasekaran

CEO & Managing Partner, Redwood Capital Group

Vice President, Redwood Capital Group

gbedrosian@redcapgroup.com

vchandrasekaran@redcapgroup.com

212.508.7111

212.508.7106

Copyright 2014 Redwood Capital Group LLC. Redwood Capital is the marketing name for Redwood Capital Group and its
subsidiaries. All securities transacted through RCG, LLC member FINRA/SIPC, a wholly-owned subsidiary of Redwood
Capital Group. Additional information can be found about FINRA at www.finra.org and SIPC at www.sipc.org. This report
is published solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer
to buy any security. The information herein is based on sources we believe to be reliable but is not guaranteed by us
and we assume no liability for its use. Any opinions expressed herein are statements of our judgment on this date and
are subject to change without notice.

www.redcapgroup.com

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