AVCJ Awards: Deal of the Year - Mid Cap: IMAX China

It took "Age of Extinction," the fourth film in the Transformers series, less than a month to become China's top-grossing movie of all time. Box office receipts came to RMB1.98 billion ($322 million), putting the domestic cinema industry on course for another record year.

Last year, China overtook Japan to become the world's second-largest movie market. With ticket sales growing at 30% year-on-year, some industry watchers tip it to replace the US as number one within five years. At the same time, cinema penetration remains relatively low in China and the likes of US-based IMAX Corp. want to play a role in the growth story.

IMAX was looking for looking for local partners to help it address the tricky regulatory and business environment. Through a combination of an acquaintance with the company's CEO and advice from LPs, Frank Tang, CEO of FountainVest Partners, put together a deal. The PE firm and CMC Capital Partners bought a 20% stake in IMAX's China unit for $80 million in April.

"IMAX doesn't make movies alone but selectively cooperates with film studios on those movies which are best fit to show on giant screens. IMAX gets a share of revenue from the studios. The company also works with operators to put IMAX screens, projectors and sound systems into cinemas," says Tang. "Having said that, the movies which can be shown in the cinemas in China are still quite regulated."

Only 34 foreign films are allowed into China each year, including IMAX's 3D format. Domestic distributors keep around 50% of the box office revenue. Movies produced as Sino-foreign joint ventures, with a certain amount of domestically-produced content, are not subject to this annual quota. As former Chairman of the state-owned Shanghai Media Group, CMC founder Ruigang Li has the contacts and experience to facilitate IMAX's interaction with regulators.

Greater China - including Hong Kong, Taiwan as well as the mainland - is already the company's second-largest market, accounting for 19% of its $287.9 million in revenue last year. IMAX has about 200 screens in Greater China, with 239 more planned for installation by 2021.

It has a partnership with Wanda Cinema Line Corporation, China's largest movie theater chain, and FountainVest will help IMAX reach out to more cinema owners as it seeks to penetrate lower tier cities.

"It is important to understand which locations to target and who to partner with," Tang says. "IMAX can sell its equipment to cinema operators through one-off transactions, but it prefers to partner with them by supplying equipment in return for a share of the box office revenue. That means IMAX needs more capital for the latter business model."

The private equity firm together with CMC has worked with IMAX on a roadmap for expansion in the China market. The China unit is expected to go public in the next five years.

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• Topics
• Greater China
• Media
• Expansion
• Growth capital
• China
• Media
• Fountainvest Partners
• China Media Capital
• AVCJ Awards