Cinema Operator Industry Report May 2014

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Cinema Operator IndustrySector Review

May 2014

www.redcapgroup.com Page |1

INSIDE THIS ISSUE

1.

Industry Overview

2. Major Industry Trends

3. Outlook and Growth

Opportunities

4. Public Comparable Analysis

5. Transaction Analysis

Contact:

Gregory Bedrosian

CEO & Managing Partner

[email protected]

212.508.7111

Vikram Chandrasekaran

Vice President

[email protected]

212.508.7106

Redwood Capital

950 Third Avenue

Suite 2001

New York NY 10022

www.redcapgroup.com

SECTORREPORT

CINEMA OPERATOR INDUSTRY

INDUSTRY OVERVIEWRECENT 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 Americaand 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 20082013) and Spain (0.1% CAGR from 20082013).

CHART 1:GLOBAL BOX OFFICE TRENDS BY REGION CHART 2:GLOBAL BOX OFFICE TRENDS BY TYPE OF

MARKET

Source: PwC filmed entertainment sector outlook 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 13new 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 revenuesin 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 ANALYSISMovie 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 Source: Company filings, Redwood Capital calculations

*For Carmike, Concessions revenues include other revenues *For Carmike, Concessions revenues include other revenues

MAJOR INDUSTRY TRENDSATTENDANCE

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 UKadmissions 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 ticketsales.

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.CPIINFLATION,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 3DSCREENS (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)


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)


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 revenuescomprise 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 OPPORTUNITIESCinema 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 andvarious 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. RegalCinemas 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 ANALYSISSTOCK 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 movein 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 basedmovie 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 ofthe 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-BonaFilm) 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 ANALYSISMERGERS AND ACQUISITIONS

TABLE 2:DEAL ACTIVITY SUMMARY,2009TO 2014YTD

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 Cinemasby

Usaha Tegas Sdn. Bhd for $3.2bn accounted for 68% of the total deal value in 2010. Moreover, Tanjong plcis 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 wasled 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-to-

equity 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 prior-

year 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,2009TO 2014YTD



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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 amajority 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.

THEAMC-WANDADEAL,$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.

THEKAROFILMDEAL,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.

THEVUE-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.

THECINEMACITY-CINEWORLDDEAL,$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 part-

finance 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,2009TO 2014YTD


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. 2014was 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,2009TO 2014YTD


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 varioussmall-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 acquisitionof 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 farin 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,20092014YTD CHART 19:DEAL VALUE ($MN),20092014YTD

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 wasfar 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 43locations 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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TABLE 6:PUBLIC EQUITY OFFERINGS SUMMARY,20092014YTD


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 equitymarkets 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 AsiaPacific 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 fiverights 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.

AMCENTERTAINMENT 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 theacquisition, 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 wasoverwhelming; 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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ADDITIONAL NOTES1THE 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 movietheaters. 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.

2THE 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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