French set top box maker Technicolor (EPA:TCH) has announced a €259m (US$293m) deal to acquire The Mill, a London-based VFX and content creation studio that focuses on the advertising industry.
French set top box maker Technicolor (EPA:TCH) has announced a €259m (US$293m) deal to acquire The Mill, a London-based VFX and content creation studio that focuses on the advertising industry.
The deal boosts Technicolor’s market position in visual effects and digital creation, as well as increasing expertise in emerging technologies such as virtual reality.
It is part of the group’s Drive 2020 strategic plan that it launched in February after three years of restructuring to become a leader in the media and services market.
“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,” Technicolor CEO Frederic Rose said.
“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.”
Founded in 1990, The Mill has grown revenues at a 16% compound annual growth rate since 1990 to reach €135m (US$152m) last year. It delivers EBITDA margins at about 20%.
Technicolor said the increased focus on advertising will also help balance the portfolio of its production services division. It was cited saying about 80% of the unit’s sales currently come from film and TV, with the rest derived from advertising and games. With The Mill, some 40% of the revenues will come from advertising.
The acquisition comes a few months after Technicolor bought Cisco’s (NASDAQ:CSCO) customer premises equipment business in a US$600m cash and stock deal, doubling its ‘connected home’ revenues and giving it about 290 million set top boxes in total across the world.
According to Technicolor, the two acquisitions mean it will achieve the adjusted EBITDA floor it set for 2020 of at least €500m (US$562m) by 2017, while maintaining strong cash flow generation.
It said both deals will translate into high double digit EPS accretion for full year 2016.
Plots M&A financing
Technicolor plans to launch an incremental term loan of about €375m (US$424m) and a rights offering of up to €225m (US$254m) to help fund the two acquisitions.
The US dollar and euro denominated loan will mature in 2020 and is being fully underwritten by Goldman Sachs, its sole lead arranger and bookrunner, with syndication set to start in the coming days.
The issuance of new ordinary shares will take place after Technicolor’s Q3 2015 results on 21 October and terms will be announced closer to the launch. The Cisco deal comprises about US$450m in cash and US$150m in newly issued Technicolor shares.
Technicolor also said it will use roughly €100m (US$113m) of cash-on-hand to finance both acquisitions. According to the company, the financing transactions should result in a pro forma expected leverage of 1.7x net debt to adjusted EBITDA at the end 2015.
Its Drive 2020 inorganic growth plan comes amid a wider consolidation trend in the industry, highlighted earlier this year by the US$2.1bn merger between set top box heavyweights Arris and Pace.
