In one of the rare ‘management buy-in’ deals in India, two professionals with a private equity background – Soumo Ganguly and Mehool Parekh – are picking a substantial stake in BSE-listed Eduexel Entertainment and are looking to raise Rs 75 crore ($16.6 million) from a private equity placement by selling 26-30 per cent in the firm.

Ganguly is the India representative of Moravia Capital and founder & chairman of Moxie Group which is into the entertainment business. He was also a part of the management team of Cinema Capital, India’s first SEBI-approved fund for the entertainment industry. Also, Ganguly was the CEO of Moving Picture Company (India) Ltd, a small-size but listed film & television company in India. Parekh is currently a managing partner of Infinity II Fund, a $15 million fund focused on Indo-US cross-border investments in technology, media and telecom space. Both Parekh and Ganguly will become the managing directors of Eduexel.

Eduexel Infotainment Ltd (formerly known as TGF Media Systems Ltd) which has a market capitalisation of close to Rs 22 crore, is into entertainment business. The small cap company led by C Vasan, a familiar name in the south Indian film market, is now up for a complete revamp with a new company name, change in leadership and fresh money from private equity fund to support its expansion plans.

“We are looking to close the deal by mid-July,” Parekh told VCCircle.

As a part of the transaction, the company is merging privately held Moxie Entertainments, an independent film production and distribution company having relationships with international and domestic film studios, with itself (under a scheme of arrangement to be approved at the AGM and also by regulatory authorities).

With offices in Mumbai and Kolkata, Moxie has produced and released eight films in the past three years. It has pre-dominantly been active in the Bengali movie space, having produced and distributed films like The Bong Connection, Via Darjeeling, Brake Fail and Tsotsi, besides Benoy Badal Dennis – a Naseeruddin Shah, Kay Kay Menon, Jimmy Shergill-starrer – scheduled to be released in August, 2011.

Eduexel is also buying all film assets of Infinity in a slump sale.

The unnamed private equity firm is going to invest Rs 75 crore for a substantial minority stake with a post-money company valuation of around Rs 180 crore ($40 million). The key transactions include asset purchase and the merger of Moxie. The PE deal is expected to take place simultaneously and will trigger an open offer. Eduexel scrip hit its 52-week high price on Wednesday before shrinking 1.9 per cent to Rs 25.5 on Thursday. The stock is now up over three times in last one year.

As part of its expansion plans, the company intends to cover the entire film entertainment ecosystem – covering film production and distribution, post production, animation & visual effects, film marketing & media services, talent management and digital rights exploitation. Each of its business units will be run as a JV with other specialised companies such as Maya Digital Studios (animation) and Endemol Motion Pictures (film production). The fresh money is being raised to invest in these ventures with other firms and also to support its own film production and distribution activities.

“This is a classic consolidation play through a listed entity. Small, sub-scale and independent companies – most of them run/owned by top creative and technical talents – are being aggregated with a view to access institutional capital and bring operational synergies. The creative and management processes will be run by the entrepreneur themselves. At the same time, the listed platform provides liquidity, transparency and corporate governance for the investors,” Parekh told VCCircle.

Since Oct, 2010, a new management has been working with existing promoter C Vasan to revive and expand the company. As part of this plan, Parekh, Ganguly and Vasan will become co-promoters of the company while the private equity firm will be a large minority stakeholder in the public listed firm. Consequently, Vasan has resigned from the post of managing director but will continue as promoter director of the company.

According to FICCI-KPMG, media and entertainment (M&E) industry grew by 11.4 per cent in 2010 and is expected to grow at 14.3 per cent CAGR between 2010 and 2015.

“Box office collection in FY10 remained poor on account of weak content which failed to generate enough appeal for cinema goers. However, many small budget movies like Peepli Live, Udaan, Love Sex Aur Dhoka, Band Baaja Barat generated good response, thereby indicating a strong pull factor for good content,” said an analyst who did not wish to be quoted.

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