eOne acquires Alliance Films, changes distribution landscape

Rumoured for months, the deal for Alliance has finally been done and the Canadian film and TV distribution industry has a new kingmaker in eOne.

As expected, Entertainment One has announced that it has acquired Alliance Films from affiliates of Goldman Sachs Capital Partners and Investissement Québec. The all-cash deal is worth $225 million and is being financed through a combination of debt and equity.

The combined company, which will retain the eOne name, will hold about a 20% share of the distribution market for independent films in Canada and will have significantly expanded its footprint in international territories. For example, its share of the U.K. market will rise to 9% from 5%. eOne additionally acquires one new territory, Spain.

The primary effect of the acquisition is that the new company will have more clout with its industry partners. Said Darren Throop, president and CEO of eOne, “Because of the consolidated offering we have a much better seat at the table with the ultimate customers—the cinemas, the broadcasters, the retailers—to present and get more of a share for our producing partners.

“It just makes us a stronger offering in every single way. It’s a stronger offering on the sales side, but also on the acquisition side. When we’re buying films, the producers can identify and recognize why they’d want to use our business to get their creations to market.”

The company’s strategy going forward includes growing its television business—especially its children’s programming, which features hits like Peppa Pig and Ben & Holly—by expanding to more territories. eOne currently releases about 150 films per year. With the addition of Alliance’s 90-film output, the total will climb to over 200 and Throop said the company plans to maintain that pace. He also added that eOne isn’t done making acquisitions and remains on the hunt for new opportunities and brands.

As is often the case with takeovers and mergers, there will be redundancies and Throop said he expects to realize about $20 million in “synergies” over the next three years. These will come from infrastructure, such as the closing of one office in Toronto (both have offices there), and from gains in margin. “A lot of our synergy focus is coming from our facilities and gross margin opportunities, which will take a little while to work their way through the P&L,” he said.

On possible staff reductions, Throop said he has yet to speak to management and that it’s too early to say, but he noted, “I can tell you there’s no way to run the combined business with current eOne staff. We are going to need the help of the Alliance management to make this the best distribution business we can.”

Throop expects the deal to close in as soon as 45 days, pending regulatory approval from the Competition Bureau. He said he’s been advised by legal counsel that there shouldn’t be any opposition from the government, but any hiccups could see the deal close later, by January 2013.