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Ron Howard's Imagine Entertainment gets new cash infusion

Feb 11, 2016 - The Deal Pipeline

Boutique investment bank Raine Group LLC announced Monday that it had made a "significant" investment in film and television studio Imagine Entertainment LLC following months of negotiations. "There's really nothing we want to say beyond what's in the press release," Imagine co-chairman Michael Rosenberg said by phone. "The most important part for us is that the deal is made and signed, and we've been working on it for quite a while. We'll be back in a few months with more to talk about."

A Raine spokeswoman declined to comment beyond the press release. Rosenberg said the deal closed Friday, Feb. 5 and has been in the works for about nine months. The terms of the deal were not disclosed, but media reports suggested that the investment was over $100 million. The Raine spokeswoman also declined to comment on the size of the investment. As part of the investment, Raine co-founder Joe Ravitch and vice president Erik Hodge will join Imagine's board. Beverly Hills, Calif.-based Imagine Entertainment was founded in 1986 by producer Brian Grazer and director Ron Howard. The studio currently produces the Fox music drama "Empire" and FX's medieval drama "The Bastard Executioner." It was the studio behind Netflix Inc.'s (NFLX) reboot of Arrested Development and is in the process of rebooting Kiefer Sutherland's "24." The studio has won 10 Academy Awards and 40 Emmy Awards. According to the press release announcing the investment, Imagine will use the new cash to expand its film and television production as well as introduce new formats, "such as branded content, location based entertainment and digital formats, taking advantage of new technologies and forms of distribution." The press release also stated that Imagine "expects to explore both organic growth opportunities as well as potential acquisitions." Grazer and Howard will remain Imagine's executive chairmen and will continue to run the company. Howard directed Imagine's most recent release, the historical adventure In the Heart of the Sea. The film, which premiered on Dec. 7, was considered a flop, grossing $90.5 million against a budget of $100 million according to Box Office Mojo. The deal comes as Imagine's 30-year production and distribution agreement with Universal Studios Inc., its primary backer, is set to expire. "Given the success that Universal has seen, particularly this year, where three movies hit a billion dollars in the box office, the segment is something that management has spent a lot of time and energy on increasing," said Amy Yong, an analyst at Macquarie Capital who covers Universal parent Comcast Corp. (CMCSA). For a smaller studio like Imagine to survive, "you have to align yourself with a larger player," Yong noted. "It gives you greater depth and distribution ability." Universal's agreement with Imagine has changed from its original format as an exclusive agreement to a first look agreement, Yong said, which means the movie giant gets to view Imagine's projects before they offered to other studios for distribution. Imagine has recently sought outside financing for its movies; Universal had no involvement with the fall's In the Heart of the Sea, for example, and Imagine's 2013 racing drama Rush cobbled together several disparate backers despite its modest budget of $38 million. At the same time, the movie business has "significantly de-risked" in recent years, she added. One manifestation is the growth at major studios of major franchises, which "can generate sequels and prequels, which have a long shelf life." One Imagine franchise that fits the bill Yong described is its adaptations directed by Howard of Dan Brown's books, starring Tom Hanks. The third, Inferno, is currently in post-production and scheduled for release in October. Raine has significant experience investing in media companies. In 2011 it invested in youth-focused media company Vice Media Inc., and in 2013 it paid $60 million for a 20% stake in Important Studios, the production studio formed by South Park creators Trey Parker and Matt Stone. In addition to investing in media companies, New York-based Raine provides traditional mergers and acquisitions advisory services, often combining the two roles. For example, it both invested in fantasy sports company DraftKings Inc. and led funding rounds for the company. According to its website, Raine typically invests $40 million to $80 million in a single transaction, but can invest up to several hundred million dollars alongside co-investors. On Jan. 26, 2015, Raine closed its second growth equity fund, Raine Partners II, at $850 million, ahead of its $750 million target. Imagine retained Skip Brittenham and Cliff Gilbert-Lurie of Ziffren Brittenham LLP and Jeffrey B. Samuels and Ariel J. Deckelbaum of Paul, Weiss, Rifkind, Wharton & Garrison LLP as its legal advisers. Neil Whoriskey of Cleary Gottlieb Steen & Hamilton LLP provided legal advice to Raine. Neither Imagine nor Raine hired an outside financial adviser for the d...