When Harvey met hedge funds

When Miramax founders Bob and Harvey Weinstein launched their new studio, they benefited from increased investor interest in the movie business - as well as their own reputations as hitmakers. By Aaron Lovell.

Orson Welles once famously said moviemaking was the “greatest electric train set a boy could have”. When Miramax founders Bob and Harvey Weinstein bolted from Disney last year to establish a new studio, they turned to the private equity market and ended up with $1 billion in equity and debt – enough to buy one hell of a train set.

For more than two decades, the Weinstein brothers made a name for their Miramax Films studio with successful art-house fare like Sex, Lies and Videotape, Reservoir Dogs and Bob Roberts. The streak continued after Disney purchased the studio in 1993, producing some of the most popular films of the 1990s, including Pulp Fiction, Clerks and The English Patient.

When the Weinsteins took their new stand-alone studio out on a private fundraising tour, they found a number of hedge funds and institutional investors keenly interested in the new venture.

“I won't say it was the most challenging equity raise I've been involved with,” says Larry Madden, chief financial officer of the brothers' new venture, The Weinstein Company (TWC).

Having two of the most familiar – and occasionally feared – names in showbusiness at the helm of a new company with a full slate of projects in the pipeline piqued the interest of a group of 22 international investors, including hedge funds GLG Partners and Perry Capital; movie producer Tarak Ben Ammar's Quinta Communications; Japan's SOFTBANK; French media conglomerate TF1; Mark Cuban's WPP Group; and Israeli investor Vivi Nevo. TWC ended up raising $490 million in equity from these institutional investors, as well as a matching credit line from advisor Goldman Sachs – allowing the Weinsteins to set off with more than $1 billion in capital.

Following an abandoned partnership with private equity firm The Blackstone Group, the Weinsteins had begun looking at how much capital they could raise in the second quarter of 2005.

“Once we determined how much we wanted to raise, we started conversing with investors,” says Madden. “There was a tremendous appetite for this type of offering.”

SPONSORS ON THE SETBelow is a selection of recent film productions that involved financial investors. Private equity and hedge funds have increasingly taken front-row seats as they surmise value in owning entertainment content.

Deal Financial backers Date Notes
Cold Spring Picture Merrill Lynch and a August 2006 A $200m co-financing for a slate of 10 films to be produced by
consortium of hedge funds, Montecito Picture Company and DreamWorks over five years.
Societe Generale
Hemisphere Film Partners N/A 2006 (ongoing) JP Morgan sponsors an $825m vehicle to create
co-financing deals with studios and film production
DreamWorks library Soros Strategic Partners, Dune May 2006 George Soros' investment leads a deal to pay $900m for 59 DreamWorks
Entertainment titles as the studio is sold to Viacom's Paramount.
Gaylord Films; Qualia Capital March 2006 The roughly $100m deal gives Qualia the rights to a filmed entertain-
Rysher Entertainment ment catalogue that includes Kingpin and What a Girl Wants.
Virtual Studios Stark Investments 2005 A $528m slate deal with Warner Brothers to complete six films, including
The Weinstein Company Goldman Sachs, GLG Partners, 2005 Bob and Harvey Weinstein create an independent film platform (see
Perry Capital, Quinta story facing page).
Communications, SOFTBANK,
TF1, WPP Group, Vivi Nevo
Legend Pictures ABRY Partners, AIG Direct, 2004 A model co-financing deal that has financial investors backing Warner
Banc of America Capital Brothers for a slate of 25 films.
Investors, Columbia Capital,
Falcon Investment Advisors,
M/C Venture Partners
Metro-Goldwyn-Mayer Providence, Texas Pacific, DLJ 2004 This $3bn deal gives its backers a catalogue of more than 4,000 movies.
Merchant Banking, Sony, A deal with cable distributor Comcast was struck.
Comcast, Quadrangle
Melrose Partner N/A 2004 Merrill Lynch arranges a $231m multi-tranche financing of Paramount
movies, including Mean Girls and War of the Worlds.
Artisan Entertainment Bain Capital/Audax Group 1999 The maker of hit Blair Witch Project allows Bain spinout Audax to
capture a 5x return on exit.