Anatomy of a deal: That's entertainment
18 February 2013 | By Becky Waller-Davies
18 February 2013
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11 September 2013
Film distributor eOne’s acquisition of Alliance Films gave Mayer Brown’s trainees the chance to experience life at the coalface of a deal, and the opportunity to rub shoulders with the stars
Canadian film distributor Entertainment One (eOne) has been quietly acquiring independent distributors since the early 2000s and is now the biggest independent film distributor in the UK and Canada.
But its inception was less star-studded. eOne began as Records on Wheels in Canada in 1972. It was a hippy slant on a mobile library - a record shop in a decorated bus. It later branched out to distributing records to other Canadian stores, expanded into video and, with the advent of the digital age, started distributing CDs and DVDs.
It listed on the Toronto Stock Exchange in 2003. A name change, US acquisition and AIM-listing later, it began snapping up companies in Europe, the US, Canada and Australia. The latest of those acquisitions was Alliance Films, a major Canadian distributor owned by Goldman Sachs and one of eOne’s main competitors.
An Alliance of equals
In early 2012, Goldman Sachs decided to sell Alliance. Mayer Brown, which had acted for eOne since 2007, represented the distributor.
Mayer Brown’s Rob Hamill, the relationship partner for eOne, says: “Entertainment One was itself going through a strategic review. It was almost a unique opportunity for it to acquire one of its main competitors, and certainly its main competitor in Canada.”
Mayer Brown first advised eOne on its AIM listing in 2007. “It used to be a Canadian-listed company and it was acquired by one of our clients who brought it to the London market,” says Hamill. “It was still a Canadian business but with a London listing and with a strategy of growing the business outside of Canada into the UK and wider Europe.”
This strategy proved successful, with Mayer Brown advising on further deals with UK business Contender, the distributor for Life on Mars and Spooks. Contender also owned a small TV production business which, Hamill says, included, “a small, likeable children’s character called Peppa Pig. Though at that point not much value was ascribed to Peppa Pig.”
From 2007 to early 2012, eOne grew in value from £100m to £400m via several more global deals. Alliance was a similar size, meaning that the company’s value would almost double as a result of one deal. The deal also meant that eOne would have a library of tens of thousands of films, including Good Will Hunting and Pulp Fiction.
Hamill says: “Alliance was a great business to buy - they have distributed major film titles like the Hunger Games and the King’s Speech. These are all back catalogue films now but they have the rights to future Hunger Games films. eOne has the Twilight series, which obviously resonates well with teenagers.
“The plan was to buy and build and try to become a leading independent distributor, and they are now the leading independent film distributor in the UK and Canada.”
The Mayer Brown team was appointed in February last year to perform due diligence on Alliance. Hamill says: “We were looking at contracts and financing and really working out from a legal perspective what was there in front of us.”
Once due diligence was completed, Alliance was acquired for £144m via a mixture of debt and equity. Senior associate Rebecca Bothamley says: “The deal was financed partly by an equity fund raise of £110m and the remainder of the consideration was financed by debt, following the renegotiation of eOne’s debt facility.”
eOne signed a debt commitment letter with lead bank JP Morgan. This is a US-style letter whereby banks commit to providing debt at the close of the transaction.
“Mayer Brown was involved in all aspects of the deal, advising on the UK due diligence and regulatory aspects of the acquisition.Our US colleagues advised on the negotiation of the debt facility but the main role for the UK team was advising on the equity fund raise,” says Bothamley.
Equity was raised through an institutional placing. Hamill explains: “We had to issue a prospectus, a document which you publish todescribe the combined business. It entails detailed business and legal descriptions of what a business will look like once it’s combined. It also meant dealing with the UKLA [UK Listing Authority].”
Knowing the customer
Bothamley had worked for eOne on previous deals, as well as advising it on its general day-to-day commercial, corporate and company law issues. She had knowledge of the company and had been involved in similar fund raises.
One of Bothamley’s main tasks was to liaise with the UKLA in relation to its sign-off of the prospectus. She also project-managed the deal and the drafting of the prospectus.
Fourth-seat construction and engineering trainee Hannah Cartwright was in her third seat in the firm’s corporate department when the firm was advising on the deal. She says: “I was proof-reading and helping to draft sections of the prospectus for the submission process to the UKLA.
“A large task was something called verification, where every material statement in the prospectus has to be verified by fact. It’s quite a large trainee task as we have to give information for everything the prospectus says.”
The acquisition of Alliance was governed by Canadian law while the debt element of the deal was governed by New York law, meaning Hamill’s team had to work with Mayer Brown’s US offices. It required Canadian Competition Bureau clearance, so the London team had to liaise constantly with Toronto firm and fellow eOne advisers Osler Hoskin & Harcourt.
Osler also advised on Canadian output agreements with studios such as Relativity, Focus Features and the Weinstein Company.
The next major date on the horizon was the signing.
“We had six or seven associates working on the transaction from finance and corporate,” says Hamill. “And we had a team of around six trainees working on it at any one time. And they were involved in all aspects of it.
“It was fortunate timing because we do our trainee seat-swap in February, so the same group of trainees who worked in the period between start and signing worked on the period between signing and closure. It worked out pretty well. It was mostly corporate trainees working in the run-up to signing and mostly finance trainees afterwards.”
Cartwright says: “Because you worked on all parts of the deal you could see why decisions were being made, which is really valuable, and you wouldn’t always get that exposure as a trainee.
“I got to go to some of the directors’ meetings and understand their decisions about the prospectus and what they wanted the deal to do. It was an interesting experience.”
Cartwright, who also drafted ancillary documents, was keen to work on a deal that guaranteed longevity for the trainees.
“I was involved on the whole project and got involved in all the tiny things as well as the main documents and helping out with signing,” she says. “It was nice to be involved with the whole thing all through the deal rather than picking up bits where you could.”
An obvious perk of advising a film distribution business is that some of the glamour inevitably trickles down.
Hamill says: “You do get to go to premieres, the clients are very considerate about handing out tickets. At one point everyone was feeling pretty exhausted and tickets arrived for the premiere of The Sweeney, so four of the associates and trainees went off to see that.
“I remember the first time two of our associates were working on an eOne project and they wondered if we would get any tickets. The first Twilight movie was coming out and I asked the client for some and they ended up walking up the red carpet behind RPatz - quite impressive. It does generate goodwill among the trainees.”
Cartwright, who attended the premieres of The Twilight Saga: Breaking Dawn Part 2 and The Sweeney, says: “It’s a nice perk if you work all weekend - it’s something you wouldn’t get on other deals.”
The last of the Twilight franchise was the most successful of the saga yet, and eOne’s biggest-grossing film ever, generating £35m in the UK and Ireland.
As the deal gathered pace, it consumed all of the team’s time. Corporate associate Frances Hull, who managed the due diligence and verification of the prospectus, says: “In the final run-up to announcement, the deal took up a significant proportion of the day.
“There were a large number of different work streams on this deal and a huge amount of paperwork which meant that we worked exclusively on this deal for a number of weeks before signing.”
Cartwright adds: “The deal kept stopping and starting because of the market. For the last two weeks of it we knew we were definitely signing on a particular date and so it took up 100 per cent of my time, but then there would be down periods where you would do a bit every now and then.”
The deal was signed on 7 September, three days before the start of the Toronto Film Festival.
Hamill says: “We wanted to try and announce before the film festival and we actually announced on the Friday before.
“We came into the office on Thursday night, having been working pretty hard, and the clients were taking photographs of the sunset from our office, which has great views over London. They were all still there in the morning as the sun rose taking photographs as well. We eventually signed about five minutes before the market opened on Friday. We had bacon sandwiches and coffee - it was fairly classic timing.”
Hull adds: “The signing day is always the most memorable moment because it is the culmination of months of hard work and it is usually the day that the clients are at their happiest.”
Hamill then flew to Toronto to celebrate the acquisition. He says: “I was lucky enough to go over and celebrate the deal in Toronto with the clients. They all flew over and I flew with them on Sunday and it was obviously quite a big deal in Toronto. eOne is a well-known company there and the Alliance deal is seen as a coup.”
In 2012 alone, eOne distributed blockbuster Looper, starring Bruce Willis and Joseph Gordon Levitt, the second part of festive family franchise Nativity 2: Danger in the Manger! and indie flick The Angels’ Share, Ken Loach’s highest-grossing film in the UK.
It capped off 2012 with a 7 per cent UK market share, a gross of £81.66m and a library of more than 35,000 film and TV titles. It even out-grossed established studio Paramount. Not too bad for the company that started life as Records on Wheels.