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postheadericon How To Value a Cinema Chain: Part 2

On April 1st London’s Financial Times newspaper carried a report that Guy Hands’ private equity firm, Terra Firma, fresh from its EMI misadventure, was looking to sell its Odeon and UCI Cinemas chain for £700 million to £1 billion or, alternatively, refinance it with £600 million of new debt. With the company’s 2009 accounts claiming around £80 million of EBITDA and maybe £100 million of freehold property in the UK, the lower of the two figures looked about right: 7.5x EBITDA for the operating company, the same multiple as in last year’s Vue sale, plus the property.

By the 12th April, however, the FT was reporting that  BC Partners and OMERS Private Equity were in exclusive talks to buy the chain for £1.2 billion, and awaiting approval from their respective investment committees. On the 14th the price was still rising. FT’s Lex column reported that Odeon and UCI’s EBITDA grew 20% in 2010,  enough to support a valuation in the £800 million to £850 million range. Instead the article repeated the £1.2 billion figure and extolled the growth prospects of the business, suggesting Terra Firma might do better to keep it.

By the 23rd reality set in. In a half-page article headlined “Cinemas price seen as fantasy” pundits were tapped for opinions and, predictably, expressed scepticism that Odeon might fetch 12 times its current year expected EBITDA of £100 million. Whatever the outcome, however, the coverage looks to have added value for Terra Firma, creating the perception of a successful and profitable investment in Odeon.

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