Hony, TPG Growth invest in film studio
Hony Capital and TPG Growth, a middle market and growth equity investment arm of TPG Capital, have partnered with Hollywood producers Robert Simonds and Gigi Pritzker to set up a film studio.
The new venture, which has yet to receive an official name, will invest more than $1 billion in film productions over the next five years. According to a statement, it will focus on financing, producing and self-distributing 8-10 "star-driven, mid-budget films" globally per year.
As an anchor investor in the studio, Hony is expected to bring its connections in China - the world's second largest cinema market - to the business. Furthermore, the PE firm has agreed a strategic partnership covering film and television production with SMG Pictures, a studio backed by China's largest entertainment conglomerates.
Additional equity and debt are being provided by the business interests of Pritzker.
"This is the first investment a Chinese company has made into a Hollywood studio; and it is a perfect example of how investors bring in various but unique resources to create a new-age studio," said John Zhao, CEO of Hony. "Together with its strategic partners like SMG and PPTV, Hony Capital will bring in the best mix of China's market resources to help Bob and his veteran team execute the first global-market focused, vertically-integrated studio that Hollywood has seen in a decade."
In October, Hony and home appliance retailer Suning Commerce - also one of the PE firm's portfolio companies - bought a controlling interest in Chinese online TV provider PPTV for $420 million.
As part of the deal, the new studio has also signed direct distribution agreements with North America theater chains AMC Theatres, Regal Entertainment Group, Cinemark and Carmike. It is expected to form further distribution partnerships with pay-TV, home entertainment and online entertainment service providers.
AMC is controlled by Chinese billionaire Wang Jianlin, chairman of Dalian Wanda Group, who bought the US company in a $2.6 billion transaction in 2012.
"We are uniquely positioned to successfully partner with traditional distributors in North America, expand in the vast Chinese market, and capitalize on new, still developing digital channels," said Simonds.
There is a compelling economic argument for co-producing films that appeal to audiences in China and private equity firms want to leverage this dynamic. Extracting returns from China's film industry, however, is no easy process.
China only permits 20 foreign films to be shown within its borders each year and overseas producers must work with accredited domestic distributors that keep all but 17% of the box office revenue.
Senior debt financing for the studio is underwritten by J.P. Morgan and Bank of America, while The Raine Group served as financial adviser.
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