Cineplex Offloads Player One Amusement Group in $155 Million Deal with OpenGate Capital, Fueling Financial Agility

Toronto-based theater giant, Cineplex Inc., has announced the sale of its Player One Amusement Group business to international investment company OpenGate Capital for $155 million in cash. The deal encompasses the sale, distribution, operation, and servicing of arcade games and related equipment.

As part of the agreement, Player One will enter a long-term commitment to supply and service games in Cineplex's theaters and various location-based entertainment venues, including Rec Room and Junxion venues. Cineplex frames this strategic move as a means to unlock significant value for the company and its stakeholders, concurrently aiding in debt repayment efforts.

"As we continue to focus on our growth plan, the strategy to divest P1AG came at an opportune time to strengthen our balance sheet,” Ellis Jacob, Cineplex's president and chief executive, said in a statement.

In its most recent quarterly financial report, Cineplex disclosed a long-term book value debt of $814.8 million as of September 30, which includes approximately $267 million in convertible debentures. The challenge of debt repayment has been exacerbated by the COVID-19 pandemic, which led to temporary closures of many theaters, impacting revenue. Additionally, the company faced complications stemming from the fallout of its unsuccessful $2.8 billion sale to U.K. theater company Cineworld Group PLC.

The terminated deal resulted in a legal dispute to determine whether Cineworld had the right to withdraw from the transaction. While a judge ruled in favor of Cineplex, Cineworld appealed before ultimately filing for bankruptcy in the U.S. Cineplex has acknowledged that meaningful cost recovery is not anticipated.

Despite these challenges, Cineplex experienced some positive developments in recent months. The release of the movie "Barbie" attracted significant audiences to the cinema chain during the summer, and the fall brought the release of pop star Taylor Swift's concert movie.

Cineplex is gearing up for a successful conclusion to 2023, fueled by the much-anticipated releases of blockbuster films such as "Aquaman and the Lost Kingdom," "Napoleon," "Wonka," and "Renaissance: A Film by Beyoncé." These films are poised to make a significant impact and contribute positively to Cineplex's year-end performance.

In the coming year, Cineplex is optimistic about the closure of its Player One deal in the first quarter, pending regulatory approvals and meeting customary closing conditions. Analyst Drew McReynolds sees this transaction as a strategic move for Cineplex to "de-lever" its business, potentially signaling a notable shift in the company's overall approach.

"Operationally, we expect the transition from a vertically integrated amusement strategy across the Cineplex ecosystem to an outsourcing arrangement under long-term agreement to be seamless," the RBC Dominion Securities Inc. analyst said in a Wednesday note to clients.

Drew McReynolds further noted that the deal signifies the achievement of "value creation" within the arcade business.

Player One Amusement Group has a history dating back to 2012 when Cineplex established Cineplex Starburst Inc. as a 50/50 joint venture with Starburst Coin Machines Inc., an arcade game distributor. By 2015, Cineplex had acquired the remaining 50%, and in 2016, Player One was created through a merger with six associated companies.

Currently, Player One boasts an extensive portfolio of 37,000 pieces of equipment, catering to 3,800 locations. The company's operations span 19 offices, and it employs approximately 500 individuals, as outlined on its website.

This information was extracted from BNN Bloomberg’s official website.