Reliance MediaWorks Ltd. said that one of its units has signed a term sheet to raise Rs 605 crore ($110 million) from a leading international private equity fund, in what would be the single largest PE transaction in Indian media sector in over five years. The potential investor has signed "an indicative non-binding proposal to acquire a substantial minority stake" in the film and media services division of the Anil Dhirubhai Ambani Group (ADAG) firm. The name of the investor was not disclosed.
Reliance MediaWorks and the potential investor have agreed to exclusivity for the next 90 days. The proposed investment is subject to completion of customary detailed due-diligence, definitive documentation, completion of subsidarisation of the film and media services business, and approvals as may be necessary," said a company statement. Reliance MediaWorks share price shot up in early trade and was at Rs 64, up by 8.57 per cent at 10:24 am on Wednesday.
Considering the deal is for a substantial minority stake (<50 per cent), the deal values the film and media services biz more than four times the parent company Reliance MediaWorks, which has a market cap of Rs 295 crore. Also, considering that the company has struck a deal which may likely value the film and media services biz at over Rs 1,210 crore, it will be nearly 6 times FY12 trailing revenues.
Film and media services is one of three business lines of public listed Reliance MediaWorks, formerly known as Adlabs. The unit was the original core business of Adlabs before Reliance ADA Group acquired the firm and added more businesses. It has presence in India, US, Japan and UK, with exposure in motion picture processing, film restoration and image enhancement apart from 3D, digital mastering, studios and equipment rentals, visual effects, animation and TVC post production.
The film production services business accounted for less than a quarter of total revenues of Reliance MediaWorks last year. The unit generated revenues of Rs 203 crore in FY12 around a fifth lower than the previous year, partly due to a business restructuring, which pulled out animation business from the unit last October. The film production services unit ended last fiscal with loss of Rs 58 crore, as against profit of Rs 12.5 crore in FY11.
Earlier this year, Reliance Mediaworks said it is splitting its two businesses -- exhibition and film & media services businesses – into separate 100 per cent subsidiaries. "The subsidiarisation step is a precursor to invite strategic and private equity investors who have expressed a keen interest in investing in the specific businesses," it said.
Reports earlier this year had suggested that Mexico's multiplex operator Cinepolis was in talks buy stake in the exhibition business. Reliance MediaWorks, which operates movie theatres under the brand BIG Cinemas, runs 530 screens in India and overseas. Reliance ADA Group was also locked in a battle with INOX group to takeover Fame to boost domestic multiplex business but INOX has raised its holding substantially to fend off any threat from Reliance ADA Group.
Reliance MediaWorks saw its total consolidated income slip marginally to Rs 814.5 crore for FY12 from Rs 836 crore in FY11 with net loss widening to Rs 518 crore from Rs 329 crore. Bulk of the losses were in the multiplex business. The exhibition business accounted for over two-thirds of revenue in FY12 with losses of Rs 166.38 crore.
Besides film & media services and multiplex units, the company is also into television production and distribution business. BIG Synergy, the television production arm of Reliance MediaWorks, has built its presence through non-fiction format shows. This accounts for less than 10 per cent of revenues, but is the only profitable business line of the company.
Reliance MediaWorks expects its film and media services unit to be a dominant contributor of the revenues accounting for over 60 per cent of the total in FY13 on the strength of the thrust towards outsourcing from the media BPO business. It has a 1,200-member BPO in Navi Mumbai that offers content processing, image enhancement and restoration services, visual effects and 2D to 3D conversion services.
Reliance ADA Gorup also controls Reliance Entertainment, a privately held separate group firm which is into film production, digital gaming, radio broadcast and other media businesses.
If a transaction materialises, this will be the largest private equity investment in the media business since March 2007, according to VCCEdge, the financial research platform of VCCircle. Singapore's Temasek, New Silk Route, Kotak Private Equity and New Vernon had invested $150 million in INX Media Pvt. Ltd, the media firm with a bouquet of news and entertainment channels set up by former Star India CEO Peter Mukerjea.
Some recent large deals include HSBC Principal Investments investing $60 million in Avitel Post Studioz Ltd, a company providing post-production and related services and Providence Equity Advisors and Macquarie picking up $72 million stake in cable television services provider Hathway Cable and Datacom besides Providence investing $58 million in UFO Moviez.
(Edited by Prem Udayabhanu)