Imax Corp. is selling a 20 percent stake in its Chinese cinema unit to two local investors, part of plans for an initial public offering of the business in the world’s fastest-growing film market.
CMC Capital Partners, an investment fund focused on media and entertainment, and FountainVest Partners, a Chinese private-equity firm, will buy shares of Imax China Holding Inc. for $80 million in two installments, Imax said today in a statement.
The investors will help Imax continue its expansion in China and strengthen government and industry relationships, the company said. Box-office sales in that country grew about 27 percent to $3.6 billion last year, according to the Motion Picture Association of America. Imax opened its first theater in China in 2011, and the big-screen theater company now has 173 screens with an additional 237 planned.
“The hope is when we face challenges that our partners’ instincts and relationships will smooth the downs, and we hope where there are opportunities for new business or brand expansion, they will have a front-row seat and bring them to Imax,” Chief Executive Officer Richard Gelfond said in a telephone interview. “We think doing business in China is facilitated by having a Chinese element in the ownership.”
Imax, based in Mississauga, Ontario, plans to keep 51 percent control after taking the Chinese unit public within the next five years, Gelfond said.
The company didn’t receive a premium price for the stock, based on trading multiples, according to analysts at Stifel Nicolaus & Co., who cited a conference call with management. The first installment of the deal was set to close today.
“Imax noted that they were not looking to maximize the valuation of the asset right now, but rather in order to effect an IPO and protect the company’s competitive positioning needed to choose partners carefully,” Benjamin Mogil, a Stifel analyst, said in a research note. He rates the stock hold.
In addition to proceeds of the share sale, Imax will get “material” fees from licensing agreements, Gelfond said. Half of the cash from the deal will go to the parent company, which hasn’t decided to do with the money and is considering all of its options, Gelfond said.
Imax fell 0.7 percent to $27.47 at the close in New York. The stock had declined 6.8 percent this year as of yesterday.
FountainVest has a history of taking companies public in China, according to Mogil. CMC Capital is a media-focused firm with ties to government and industry, and is a partner with DreamWorks Animation SKG Inc. in China, he said.