Goldman Sachs Group Inc. wants to close the curtain on its brief foray into the movie distribution business, as it shops the stake of Alliance Films it acquired in 2007.
The New York-based investment bank is looking to sell the business amid renewed optimism in the entertainment sector, with distributors and investors looking toward mobile devices and digital delivery as a way to drive new profit from their existing catalogues.
In Alliance Films – a former division of Alliance Atlantis Communications – a buyer would get Canadian rights to some 11,000 titles. It would also include Canadian distribution rights to movies produced by Relativity Media, Focus Features, Weinstein Company and CBS Films. The company also acquired Maple Pictures last year in a deal worth $40-million.
However, a buyer would also inherit ownership complications. To appease regulators, Goldman only owns 75 per cent of Alliance and Quebec-based Investissement Québec owns the remainder. Any international buyer would also need to find a Canadian partner – Investissement Québec, the investment arm of the Quebec government, said it wants to sell its stake to focus on investments in the natural resources sector.
"Assuming the government keeps the Canadian ownership rules in place, this is a tough sell," said Ben Mogil, director of equity investments at Stifel Nicolaus in Toronto. "Private equity firms in Canada largely passed on this asset in 2007 when the business was way stronger than it is now."
After a dearth of deals in the sector, last year saw $1.4-billion in refinancings for large movie distributors in the United States. Analysts at IBISWorld estimate profits in the industry will increase 12.2 per cent over the next five years, mostly due to technological improvements that mean fewer employees and wider distribution of archived movies. The proliferation of smartphones globally is also expected to boost demand for exclusively owned content held by companies such as Alliance Films.
"This growth will be gradual though," the research firm said in a recent report. "Competition will continue to pressure distribution companies to advertise and cut prices."
Bank of Montreal was hired to handle the sale. It's unclear who may be interested, although Cineplex Inc. and Empire Theatres Ltd. are Canadian movie companies that may be interested in looking through the books. Donald Sobey, who is chairman of Empire, once sat on the Alliance Atlantis board.
Entertainment One, a Toronto-based distributor with extensive global operations would also seem to be a logical fit, but it has its own issues. The company said last month it would be "considering its strategic options" after being approached about a sale, and hired J.P. Morgan and Credit Suisse to review the possibilities. It's seen as a highly prized asset thanks to its association with the Twilight films.
Goldman partnered with CanWest Global Communications to buy Alliance Atlantis in a $2.3-billion deal in 2007. In addition to its core distribution business, Alliance Atlantis and CanWest owned cable channels that Goldman would eventually sell to Shaw Communications in 2010 for $2-billion following CanWest's bankruptcy.
Alliance Films also owns a 50-per-cent stake in the CSI: Crime Scene Investigation television franchise, which Goldman doesn't intend to sell with the distribution business.
Most recently, Alliance Films scored a hit with The King's Speech, which cost $8-million to make and earned $400-million. It also came out on top with the relatively low budget horror movie Insidious, which cost $1.5-million and earned $100-million.