Hollywood Merger Frenzy Turns To Deals For Billion-Dollar Production Companies
Premium content companies like A24, Imagine, Hello Sunshine and SpringHill explore sales as streaming changes business
So it’s no surprise that one of the industry’s most respected production companies – Imagine Entertainment, founded by Brian Grazer and Ron Howard – is also in talks with buyers, a person with knowledge. Meetings have been held with at least one petro-state sovereign wealth fund in the Middle East in addition to private equity buyers. The Raine Group owns 51% of the company after a $ 100 million investment in 2016, but Grazer and Howard are both open to the idea of a sale, the individual said.
The company is valued at around $ 850 million, a relative godsend given the company’s legacy of success including “A Beautiful Mind,” “Apollo 13,” “How the Grinch Stole Christmas” and “The Da Vinci. Coded”.
“Streaming has changed the business model,” said an entertainment executive, who called the moment a once-in-a-lifetime opportunity for those looking to cash in. “If someone comes in with the right offer, you do what you need to do. You line up or you get redeemed by something bigger.
Another prominent Hollywood insider agreed, adding that there had never been more demand for production and the stock market was higher than ever.
“You have a confluence of many singular events that are pushing all asset values to historic highs,” said this insider. “There have also never been so many IPOs in the history of the capital market and so much money raised as two years ago and it continues… Do not explore a sale in these times, when are you going to do it? The time has come.”
But a prominent entertainment lawyer said he thought the float prices were “Hollywood Fantasyland, where everyone adds a few zeros to anything.”
“I don’t think the world has lost its mind and is going to overstate these billion dollar companies. I think it’s just, like, a fruit cake, ”said Schuyler Moore, partner of Greenberg Glusker. “You ask yourself the fundamental question: what interests do they have in existing films? And I would be surprised if it was a lot.
Imagine Entertainment, founded by Howard and Grazer in 1985, does not own most of its productions. In fact, she has teamed up with many other companies on hits like “A Beautiful Mind”, “Apollo 13”, “8 Mile” and “Mulholland Drive”, as well as TV shows like “Friday Night Lights” , “Arrested Development” and “Empire”. Other credits include “My Girl”, “The Nutty Professor”, “Liar Liar”, “How the Grinch Stole Christmas”, “Inside Man”, “Rush” and “Psycho”.
But it has healthy cash flow from profit sharing in company-created movies and TV shows. For example, Imagine still participates in the profits of its Oscar-winning film, “A Beautiful Mind,” even though it does not fully own the project.
This is because most production companies sell their work to bigger distributors and lack the kind of content libraries that have generated big sales in recent years, like Amazon’s proposed acquisition of MGM for 8.45. billion dollars with its list of 4,000 and 17,000 hours of television shows.
Yet the lack of a library does not seem to deter financiers from exploring deals.
Corey Martin, managing partner at entertainment law firm Granderson Des Rochers, attributed the new push for more deals to a mix of fresh money entering Hollywood business and an insatiable appetite for content that l era of streaming has sparked.
“For a long time, it was believed that the easiest way for an investor, be it an individual or a wealthy institution, to lose money was to invest in entertainment,” he said. said Martin. Streaming has fundamentally changed the way Hollywood does business and in doing so has removed some of that risk, he observed. A film cannot bombard if it is streamed, where it is available in perpetuity and where audience measurements are often opaque.
“When you talk about the fact that the landing point for a lot of this content will be streaming, then there’s a much longer tail, and that mitigates the risk a lot,” Martin said.
Consolidation is fueled by streaming wars and the race to align content during a very competitive time. The urgency, said a leading agent, is driven by the realization that not all streaming services in 2021 will be in 2025. “Streamers are currently actively buying with the goal of being one of the four or five still standing during the inevitable regrouping. and consolidation is happening, ”the agent said. “So now is the time to cash in. And these days, I think almost everyone is in the storefront.
Fusion fever is contagious, it seems. Martin said he has clients in the entertainment industry who switch from looking for financing to finding a buyer. “We have clients who were looking to do strategic fundraising rounds, who are now looking to find sales opportunities,” he said. “And then we have others who weren’t thinking about anything, whether it was raising capital or selling, who are now looking to get into some kind of fundraising or M&A business.”
Likewise, James made lucrative deals with Universal for motion pictures and ABC Studios for television, and raised $ 100 million last year.
The arthouse studio A24, meanwhile, was founded in 2012 and has distributed films like “Ex Machina”, “Moonlight”, “Room”, “Hereditary”, “Lady Bird”, “Uncut Gems ”and“ Midsommar. Some of A24’s films have received critical acclaim and won awards. Its television division has produced shows like ‘Euphoria,’ ‘At Home With Amy Sedaris,’ and ‘The Carmichael Show.’ A24 produces, acquires and does hand out projects, but even so, its $ 3 billion valuation looks hugely inflated for a company under ten years old.
Hello Sunshine, which does not have its own projects, was founded in 2016 as part of a joint venture with AT&T, which still holds a minority stake through its stake in Otter Media. Along with Witherspoon, the owners of Hello Sunshine include Seth Rodsky and Jim Toth, a former CAA agent who is Witherspoon’s husband.
Hello Sunshine’s productions include HBO’s “Big Little Lies”, Apple TV +’s “The Morning Show”, Hulu’s “Little Fires Everywhere” and upcoming titles like Amazon’s “Daisy Jones and the Six” and the big screen adaptation of “Where the Crawdads Sing”. In December, Hello Sunshine acquired SKR Productions from Sara Rea to help it expand into unscripted content.
When asked if Witherspoon’s business was really worth $ 1 billion, a leading agent told TheWrap: “Probably not, but ask for the highest possible price at the top of the company because at a At some point, the business will consolidate and the money will be gone. “
He added: “What matters most to the potential buyer of these types of businesses is their library. Having a library is the most important thing in this business.
Overall, investors are looking to invest in content not only because of the high demand but also the longevity of the income stream it can provide.
“For a long time, it was felt that the easiest way for an investor, whether an individual or a high net worth institution to lose money, was to invest in entertainment.” , said Martin. “Now they see entertainment, especially content, as a rent. All of this has a long tail in terms of revenue stream. The prevailing sentiment among the investor class today is that content is a safe place to deploy capital. “
As to whether these companies can command the prices that have been floating? As the insider put it, in terms of valuing a business, “It takes a person to believe it to be so.”
Umberto Gonzalez and Sharon Waxman contributed to this report.
- September 16, 2021