Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Cineplex is morphing into more than just a movie-theater chain. At a time when cinema visits are falling out of favor, it seems like the right move.  

The Toronto-based company announced on Wednesday that it's buying Tricorp Amusements, which distributes and services the arcade games that are found at venues including rival theater chains AMC and Carmike, as well as AMF bowling centers and mini-golf facilities. 

Admit One
Cinema admissions in the U.S. and Canada have declined in recent years, in part due to streaming services and alternate forms of entertainment
Source: AC Nielsen EDI, Rentrak, National Association of Theatre Owners

Branching out beyond movie theaters makes sense for Cineplex, so to the extent that the Tricorp purchase bolsters that shift in direction, it's a positive. Cineplex already owns arcade-game sellers Premier Amusements and Brady Starburst, which it operates through its equipment arm Cineplex Starburst. The purchase of  New Jersey-based Tricorp will allow it to ramp up its U.S. presence, President and CEO Ellis Jacob said Wednesday. 

Still, for a $2.4 billion company like Cineplex, it's a relatively small acquisition. (Tricorp's annual revenue is roughly $28 million). Could it dream bigger? 

If Cineplex wanted to meaningfully extend its reach, it could revisit an idea it considered back in 2014 (albeit in partnership with the private equity arm of Onex Corp.): splashing out on an acquisition of Dave & Buster's Entertainment, the $1.7 billion restaurant-and-arcade chain. 

Let Me Entertain You
Cineplex shares have lagged those of Dave & Buster's, an adult and family entertainment center operator
Source: Bloomberg

Dave & Buster's is more expensive than it was back then -- its shares have rallied 153 percent since the company's October 2014 initial public offering -- but a deal could still make sense. A transaction at a 30 percent premium, or $52.51 (above Dave & Buster's all-time high of $49.31) would be immediately accretive to Cineplex's earnings per share, even without accounting for any synergies, according to data compiled by Bloomberg.  

Cineplex is in the process of rolling out a copycat concept called The Rec Room, so it may not have this idea on its radar right now. It opened its first location this week where, like at Dave & Buster's, customers can eat, drink, play games like air hockey and watch sports. But a purchase of Dave & Buster's would certainly jump-start Cineplex's move in that direction.

With or without Dave & Buster's, investors should welcome Cineplex's diversification, even as it invests in improvements at its movie houses. The company has grown both its digital signage arm  and online store that lets customers download movies to rent or keep (it also sometimes sells them the right to do so along with their original movie ticket).

The less reliant Cineplex is on the habits of moviegoers and the unpredictable slate of films that are box office hits and misses, the better. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Assumes 20 percent of the offer will be comprised with cash which will be made up of cash on hand plus the assumption of $475 million in new debt, which would take Cineplex's covenant leverage ratio close to its limit of 3.5x, from its June 30 level of 1.42x. 

  2. Cineplex Digital Media installs video walls and tablets, among other media, on behalf of clients such as "The Beer Store". 

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net