JPMorgan Sees Cinemex Success –

JPMorgan Partners was one of the initial investors in Grupo Cinemex in 1993, a business that was founded by Miguel Angel Davila with two fellow students at Harvard Business School. And despite the devaluation of the Mexican peso, the following year, JPMorgan continued to support Cinemex through those turbulent times, during which it became the largest movie theater operator in Mexico City.

The payoff for JPMorgan’s loyalty was the successful exit two weeks ago, when Onex Corp. took a majority stake in Grupo Cinemex, which will be combined with the Toronto-based conglomerate’s Loews Cineplex Entertainment.

The $288 million deal includes the assumption of debt. Onex will invest $123 million, giving it 58% ownership. Los Angeles-based Oaktree Capital Management – Onex’s partner in Loews – will own 42% through an investment of more than $90 million. The balance of Grupo Cinemex’s value is in outstanding loans that the new investors will assume. Onex said it plans to inject more money into Grupo Cinemex as part of the transaction.

Onex completed its purchase of Loews two months ago following the chain’s emergence from bankruptcy protection. Loews is the third-largest cinema operator in North America.

Cinemex owns and operates 31 theaters with 349 screens and is the leading theater exhibition company in Mexico City with more than 50% marketshare. Cinemex opened its first theater in 1995 and has since developed a world-class circuit. In 2001, Cinemex had total revenue of $138 million and Ebitda of $43 million.

Built on a business model emphasizing customer service, continuous showings of films, quality control, theater comfort and highly trained employees, Cinemex uses the highest-quality projection and audio equipment available.

Opened to the public in November 2001, Cinemex Real houses eight screens. Following on the heels of the Real, Cinemex Universidad made its debut in December 2001 with 12 screens. Incorporating Christie projection systems, Dolby processing, and both JBL ScreenArray and Klipsch loudspeakers, systems integration at both locations was carried out by Guadalajara, Mexico-based Dor Internacional.

“Cinemex has reached a size where it must have well-capitalized partners with a strong commitment to our industry,” Davila, the outgoing chief executive officer of Cinemex, said in the statement.

“This investment is a prime example of successful investing in Latin American companies with proven business models, strong management teams and experienced investors,” said Robert Velarde, principal of JPMorgan Partners.

Velarde is relocating to Mexico to open the firm’s Mexico City facility, thereby increasing its presence there. JPMorgan Partners has a $900 million Latin American fund, and Velarde said his team is trolling for deals. Unlike other Latin American countries, Mexico’s economic environment, political reforms and proximity to and business relationship with the U.S. makes it a more attractive investment area. “We’re very bullish on Mexico,” he said.

Onex Corp., with annual consolidated revenues of approximately $16 billion and consolidated assets of approximately $15.5 billion, is Canada’s fifth largest company. Its subsidiaries include Celestica Inc., Loews Cineplex Entertainment, and a slew of other properties.

The Place To Be

Last February, an investor group comprising Oaktree, Onex and Beverly Hills, Calif.-based Pacific Capital Group made the first major move in what became a series of buyouts in the debt-burdened cinema chain sector when they acquired Loews Cineplex Entertainment Corp. in a deal worth $1.3 billion.

The same month, Oaktree and Denver-based distressed debt specialist Philip Anschutz made their move on a Hicks Muse and KKR portfolio company, Regal Cinemas, taking approximately $450 million of the chain’s $1 billion in syndicated bank loans.

In April 2001, theater chain operator AMC Entertainment sold $250 million of preferred stock to Apollo Management.

In May 2001, Oaktree and Anschutz invested in the recapitalization of Edwards Theatres Circuit. Oaktree had already purchased approximately 57% of the $100 million in unsecured distressed debt at Silver, parent company to the Landmark Theatres arthouse circuit and assorted discount theaters, while Anschutz had acquired the debt – and effectively the circuit – of United Artists Theatres in 2000.

In June 2001, Oaktree and Onex snapped up General Cinema Theatres from GC Companies in a $36.6 million transaction just as the chain filed for Chapter 11 bankruptcy protection. The most recent Oaktree and Onex theater deal was in April, when the firms acquired the 50% stake in the Loews-Star Partnership cinema chain not owned by Loews Cineplex Entertainment Corp. in a deal valued at approximately C$110 million. Onex committed approximately C$34 million to the transaction.