The Mill joins Technicolor
In a move estimated to be worth nearly US $300million ($292M) Technicolor has acquired The Mill, the current world leading and largest player in vfx and post in the world wide advertising segment. The Mill was founded by Robin Shenfield and Pat Joseph in 1990 in Soho, but with its DNA from Irish roots. It has offices in London, New York, Los Angeles and Chicago. While The Mill (Mill Film) did great work on the early Harry Potter films and won the Best Visual Effects Oscar in 2001 with Gladiator, the company is focused on advertising where it is arguably the number one company for TVC work and has earned in excess of 1,000 industry awards. It helped re-launch Doctor Who and today does everything from VFX to VR. In fact, VR was singled out as one of the many aspects of The Mill that was of interest to Technicolor.
Interestingly in the press release that went to the financial press, Technicolor gave a valuable insight into one of the most important media companies in our industry, covering as they do a huge range of companies such as MPC, Mr X and Mikros Image, etc. - having last year produced some 6,000 film and advertising visual effects shots and with a global staff of 14,000 employees.
The Mill, it was disclosed, has had a compound annual growth rate (CAGR) since 2009 of 16%, and a annual sales revenue of about $150M. This rates the company as having a P/E (Price to Earning ratio) of about 2, which is very low by some other industry standards but in line with what fxguide has estimated is a fair and reasonable price in our industry, assuming no debt - and in this case the $300M price tag is the debt free valuation. What is even more interesting is that The Mill has been returning a margin of 20% EBITDA (Earning before Interest, Tax, Depreciation and Amortization). It would be interesting to know the margin % that is EBIT - As that number would include depreciation, and let's face it, depreciation is somewhat important in our industry as vfx companies all require capital equipment and depreciation is 'the thing' that measures or financially allows for the gear you use to produce the work (only consulting service companies with just people should focus on EBITDA). In other words, the 20% is not the straight margin or the operating profit margin, but it still points to The Mill being a healthy company, clearly well run and working in an environment of tight margins - but doing so successfully.
This acquisition accomplishes many objectives set out in Technicolor’s Drive 2020 strategic roadmap. It reinforces Technicolor’s strong portfolio of brands including MPC, Mr. X and Mikros Image servicing a broad range of customers across 10 global locations. With this acquisition Production Services inside Technicolor will account for approximately 40% of Entertainment Services revenues.
“In acquiring The Mill, we are executing on our Drive 2020 strategic objective of enhancing our market position in visual effects while improving profitability and revenue growth concurrently with accelerating deployment of emerging technologies,” said Technicolor CEO, Frederic Rose. “In The Mill, we have found a company that aligns with our focus on excellence in talent, technology and operational performance. It is a perfect fit.”
With these two transactions, the Adjusted EBITDA target that Technicolor has set for 2020, of at least US$560 million will be achieved by 2017 while maintaining a strong cash flow generation. The transaction combined with the acquisition of Cisco Connected Devices will translate into high double digit Earning per Share (EPS) for the full year 2016. But it should be noted that Technicolor is financing the deal by a combination of funds:
- An incremental term loan of US$422+ million maturing in 2020 fully underwritten by Goldman Sachs,
- A Rights Offering of up to roughly US$250 million, which Technicolor will launch after the publication of its Q3 2015 revenues and
- Approximately US$110 million of cash-on-hand which will also be used to finance the acquisitions.
The company's target 2015 Leverage ratio (Net Debt/EBITDA) is around 0.75x for the end December 2015.
Sam Mercer joins ILM
In other industry news, Industrial Light & Magic (ILM), a division of Lucasfilm, and thus Disney, announced that film producer Sam Mercer has joined the company as Head of ILM Studio. He will be reporting directly to Lucasfilm General Manager Lynwen Brennan. Mercer will oversee and coordinate the company’s operations across all four of ILM’s global studios, San Francisco, Singapore, Vancouver and London.
ILM has one of the most enviable slates in front of them with a stack of Star Wars films and a front row seat to the Marvel Universe thanks to the joint Disney parent. ILM in recent times has moved to engineer more long term technologies on the back of this and establish new teams with much longer planning timelines than most companies can dream of. Mercer joins at a very opportune time for the company. After 40 years the company has one of the most stable decades mapped out ahead that it could have ever known.
Mercer is no stranger to vfx but does not come from an effects artist background - he has produced many high-profile vfx films over the years such as Brian De Palma’s Mission to Mars, seven of M. Night Shyamalan’s films including Signs and The Sixth Sense for which he received both Academy Award and BAFTA Best Picture nominations, Sam Mendes’ Jarhead, and Rupert Sanders’ Snow White and the Huntsmen. Mercer is also a Producer on Steven Spielberg’s upcoming fantasy film The BFG, based on the novel by Roald Dahl, which looks to be a rich vfx experience.
“I am thrilled that Sam will be leading ILM into our fifth decade,” said Lynwen Brennan, Lucasfilm General Manager said in a statement released today. “His vast experience as a producer together with his long history with visual effects including eight films with ILM provides a valuable perspective within the VFX industry. As Visual Effects becomes increasingly integrated into filmmaking from pre-production through to post, Sam’s filmmaker point of view enables us to provide a unique level of creative collaboration and partnership with directors, producers and studios to bring their visions to the screen.”
Kathleen Kennedy, Lucasfilm President, noted, “I have had the pleasure of knowing and working with Sam for many years and I have come to rely on his skill as a creative problem solver. Sam has that rare ability to head off potential issues before they become real problems, and he manages to do it while maintaining an even keel and level of professionalism that has earned him the respect and admiration of every crew he works with.”
“ILM is unparalleled in the industry in terms of their artistry and legacy of innovation,” explained Mercer in a statement, “Having worked with them on eight films, I know firsthand the incredible talent at the company and from a filmmaker’s point of view they are one of the few companies that consistently delivers not only with regard to achieving the creative vision but from a scheduling and budgetary perspective as well.”
Having previously been with The Walt Disney Studios as a production executive Mercer supervised such films as Good Morning, Vietnam, Three Fugitives, and Dead Poets Society. Within a few years, Mercer was promoted to vice president of motion picture production for Hollywood Pictures and in addition to Arachnophobia, he was responsible for such releases as Quiz Show, The Joy Luck Club, Born Yesterday, Swing Kids and The Hand That Rocks the Cradle. Mercer left Hollywood Pictures to pursue independent producing on Frank Marshall’s second film Congo.
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