In a room with Vue
Article Date: Sep 19 2006Innovation is embedded in the Vue culture. The company was the first cinema chain in Europe to do away with box offices. Instead, customers buy their tickets at the same tills where they pick up Coke, popcorn and ice cream. 'We are constantly testing new ways of doing business,' Richards says. 'We opened up our first purpose-built new cinema in October in Blackburn and it was hugely successful – outrageously successful – and that created a problem because we didn’t know why. So we had to work out what component of the new business was responsible for the success. It’s a nice problem to have.'
Meeting such challenges relies on the talent of Vue’s management team – an asset that any backer will assess before supporting an MBO. The June buyout enabled the management shareholders to take out a small tranche of cash, while rolling over a considerable amount of equity into the new venture. Richards says: 'I had always hoped and believed that my team was so passionate about what they were doing that it would have no effect. But you never know – money can do funny things to people. It was really refreshing that a week after we closed, people were still in the office at midnight. It is not money that’s motivating and driving people. It’s that people love and enjoy what they do.'
This new phase of Vue’s development is suited to the relative stability and long-termism of integrated finance. Richards says he didn’t know exactly when the three original private equity houses would want to exit. 'Whenever you get into bed with the private equity world you know it is not a long-term play,' he says. 'They are opportunistic and if somebody comes along with a big cheque, they sell.'
Despite this inherent uncertainty, Richards’ experience of private equity has been a positive one. 'I was very fortunate in that I had one absolutely fantastic founding shareholder, and two other really great shareholders. But the difficulty with three shareholders was they all had different methods and different ways of valuing the company. It created a certain level of complexity that involved a lot of time and a lot of work.'
Richards and his shareholders explored a range of exit routes before settling on an MBO. Options considered included trade sale and flotation. New private equity deals were also considered, and this led to a meeting with the Bank of Scotland. Richards was immediately impressed. He explains: 'Through their integrated finance unit, they are very supportive of management. They are more a banker than a potentially micro-focused private equity player. Also, the time horizons with them are very different because they are in it for the medium- to long-term. That’s a big plus for us because we are not a short-term business.'
Having met the Bank of Scotland’s integrated finance team in 2005, it then took Richards the best part of a year to complete the buyout. It was a relatively complex situation for Richards and his management team, as they were both vendors and buyers. Richards freely admits to having felt the inherent conflicts in the situation. 'We have always prided ourselves on operating at a level of complete transparency with our shareholders,' he says. 'But it was very difficult. We were buyers; we were sellers. And depending on which issue it was being considered, we were conflicted. You do your best to navigate that professionally, but it is a real challenge. It is not a process I enjoyed.'
Richards understands that, even when the buyout deal was being planned, existing shareholders’ interests had to come first. 'Ultimately my job is to get the maximum value for shareholders,' he says. 'My goal was, is, has always been to maximise value for the shareholders. So if a third-party buyer came in and wanted to write a very big cheque – that would be the thing that would make most sense for the company.' Now that the buyout is complete, Richards is excited about the opportunity it gives management, which increased its holding from 15 per cent before the deal to 51 per cent afterwards. 'Over time, with a lot of hard work and a bit of luck, we will pay down debt, we will refinance the company and it could potentially be very interesting for us,' Richards says.
