PEP puts $700m on table for the Hoyts cinema chain

Australia’s Hoyts cinema chain has 450 screens with 55,000 seats.

Pacific Equity Partners is understood to have offered just over $700m for the Australian cinema chain Hoyts, the company owned by China’s Wanda, which is facing financial pressure from its lenders.

While the Sydney-based buyout fund was working hard on an acquisition a few weeks ago, a deal remains on the go-slow in what is understood to be a complex situation.

Hoyts is part of the China-listed Dalian Wanda Group, and held in the listed company Wanda Film Holdings, with a market value of about $5.5bn.

Dalian Wanda Group, controlled by billionaire Wang Jianlin, owns about half of that vehicle which has about 500 cinemas in China.

His Wanda empire, which spans real estate, manufacturing, entertainment, hospitality, healthcare and financial services, is known to be facing large, looming debt payments amid a rising interest rate environment, so the money is needed.

However, Hoyts is understood to be valued on the books of its listed parent, Wanda Film, at about $1bn, so a sale at about $700m would require a major asset value writedown.

The challenge is finding a way to get a deal done without the Chinese owner losing face.

While earnings have recovered for Hoyts from the global pandemic, they are still down about 20 per cent from before that time, so for PEP paying a higher multiple is hard to justify, and in a rising interest rate environment the expectation is a reduction in consumer spending in the months ahead.

It comes as DataRoom recently reported that Anchorage Capital Partners also put in a low-ball bid for the business up for sale by Credit Suisse and Nomura after first revealing in 2021 a sale was on the cards and later that PEP was a suitor.

Dalian Wanda sold most of its major stake in US-based cinema business AMC Theaters in 2021.

It first acquired the business in 221 for about $US2.6bn then floated the company, the Wall Street Journal reported.

Hoyts has 450 screens with 55,000 seats, and in the past year it generated about $150m of annual earnings before interest, tax, depreciation and amortisation on the back of the Covid-19 recovery.

It is the second largest movie exhibitor after Event Hospitality and Entertainment.

Dalian Wanda Group, purchased Hoyts from Pacific Equity Partners in 2015 for what was thought to be a deal worth $US750m.

PEP had bought the cinema chain in 2007 for a price that valued the business at $440m.

Hoyts also runs the Val Morgan cinema screen advertising operation, which is the leading national supplier across Australasia.