Market Insight

Iconic Pinewood studios to be acquired by real estate fund for £323 million

August 16, 2016

Pablo Carrera Pablo Carrera Principal Research Analyst – Cinema, IHS Markit
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UK Pinewood Group, the leading provider of studio facilities and related services for TV and films (the Bond saga and the latest Star Wars, among others), has agreed the main terms of an offer to be acquired by PW Real State Fund III (“PW”) for £323 million ($423 million) in cash. The deal has already been backed by Pinewood’s board and almost 80% of its shareholders and is expected to be finalised in the last quarter of 2016.

The studios released positive financial results early July, with £10.1 million normalised profit after tax, up 51% from 2014.  

Pinewood had recently worked to expand its facilities and international reach with the ultimate to list in a main stock market (it’s currently in the AIM). However, the scarce movement in its shareholder base, which remained mostly unchanged in the last years, meant reduced access to liquidity and frustrated the main market listing. Consequently, the board reviewed the strategy last February and hinted a sale as a potential solution – which has been cooking since.

In addition to its core studio rental services, Pinewood provides production and postproduction services, and production funding to film and TV production companies. It also hosts a cluster of 250 media-related businesses in its facilities.

 

Our analysis

Pinewood is a world leading provider of studio facilities, either through direct ownership (in the UK) or through sales and marketing agreements (in Toronto, Malaysia, Dominican Republic and the US). It is a unique case in that it has exploited and monetised its brand and know-how internationally without the need to build or acquire facilities. This has provided a steady revenue flow without financial risk, whilst contacts and operational skills were also retained. 

In the UK, where most of its profits are generated, recent depreciation of the pound against the US dollar means it is likely the new sound stages built by Pinewood will operate at a higher capacity, boosting the already positive turnover growth. 

The reasons behind the sale seem straight forward. The Group already raised £30 million in 2015 through additional share capital to fund Phase One of its UK studios expansion. However, there are still two more phases to go and the effort to raise further capital each time, paired with a steady shareholder base, makes the sale a reasonable solution to access liquidity. Moreover, PW reportedly manages £1.5 billion (ungeared, which could mean more) and could fund a more ambitious expansion strategy that involves further acquisitions.

And whilst this sale does not change the landscape because the buyer is a media outsider, PW’s exit could well do if it sold the group, or its assets, to a bigger player. At the moment, there is no studio or media giant with such European physical facilities, with the exception of Warner with its Lavender studio.  

It is important to note that PW does not intend to change management or split the real estate and the operational businesses, so it should remain ‘open as usual’ for clients, which include Hollywood studios, and suppliers. 

 

Research by Market
Media & Advertising
Category
Cinema
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