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Deal makes theatre history

Published Friday 6 November 2009 at 15:35 by Alistair Smith

ATG’s growth into the largest theatre operator in the UK represents a remarkable achievement, writes Alistair Smith

The sale of Live Nation’s UK theatres represents the biggest shake-up to the UK’s theatre landscape in at least a decade and it has been brewing for some time.

Live Nation, a California-based entertainment company with concert venues worldwide and multimillion-pound deals with artists like Madonna, had been looking to focus on its music business since 2007, when it revealed it wanted to sell off the majority of its US theatre holdings. That deal was completed in January 2008 and, since then, the British theatre community has been waiting with bated breath for it to put up the ‘for sale’ signs outside its UK venues.

This finally happened in June of this year, although Live Nation continued to insist it was nothing more than “a fishing exercise” and there was still a good chance the company would hold on to its UK assets. Certainly, it was only going to sell if the price was right.

Early estimates of what the venues were likely to cost were in the region of £75 million and the front-runners back in June were the Dutch entertainment company Stage Entertainment and Key Brand Entertainment, the US-based organisation which had bought Live Nation’s American venues in 2008 for $90 million. Outsiders included UK companies the Ambassador Theatre Group and Qdos Entertainment, as well as talk of a management buy-out.

Over the summer, rumours abounded of deals being done, partnerships being made between various bidders and private equity firms who were interested in acquiring the theatres for themselves. One by one, as the price began to escalate, bidders dropped out until only two principal runners and riders were left - Key Brand Entertainment and ATG.

The price had now risen to around the £90 million mark and ATG were Live Nation’s preferred bidders. All they had to do was secure a funding package to finalise the deal, as Key Brand waited in the wings in case everything fell through. It didn’t, ATG raised the cash through a mixture of existing shareholders, new private investors and a major injection of private equity cash. Following a period of due diligence, the cheque was finally handed over on November 2.

Is it worth £90 million?

ATG has paid a lot of money for Live Nation’s UK theatres.

Live Nation describe the sale, including Nederlander’s purchase of the Dominion, as representing 10.4 times the group’s estimated operating income. The department makes an annual profit in the region of £11-12 million, so if you look at it that way, ATG is paying about seven or eight times the annual profit of Live Nation’s UK theatres.

That is an awful lot. Most banks will only finance a maximum of roughly two to three times annual profit at the moment, due to the state of the global economy, so on paper this represents something of a gamble. On top of this, many of the Live Nation venues in the regions need some refurbishment work and this kind of capital expenditure can be pricey and could easily eat into ATG’s profits on those venues for the first few years.

However, theatre is a profitable industry at the moment and ATG is buying a profit-making company, including two flagship West End houses with long-running shows in them. Combined with its existing holdings and by efficiently streamlining marketing and ticketing operations, it should be able to increase the annual profit of the theatres.

On top of that, it will also now have a pre-eminent position within the UK theatre industry, especially in the regions, where it will be the dominant force. This could work to its advantage. Time will tell, though, whether ATG or Live Nation got the better deal.

It is also worth noting that a large proportion of the funding for the purchase appears to have come from private equity firm Exponent, who will now become ATG’s majority stakeholder. Unlike Cameron Mackintosh or Andrew Lloyd Webber’s operations, ATG has always had major shareholders from outside the theatre industry - whether it be private equity firms or property developer Peter Beckwith - so this shouldn’t prove to be too big an overhaul for the company. Howard Panter and Rosemary Squire, despite being minority shareholders, will continue to run the company.

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