The Hindu Business Line : Acquisition plans to boost Prime Focus revenues

Prime Focus, a movie post-production company, has announced that it is in discussions to acquire two US based entities, confirming recent news reports. Prime Focus has been scouting for acquisitions in the US, specifically Los Angeles, for quite some time, hoping to have access to the world’s biggest market for post production. Neither the identities of these targets nor the outlay has been disclosed.

The transaction would be subject to due diligence and execution of definitive agreements. Prime Focus is likely to be adequately funded for the acquisition, with its board recently approving to raise funds through issue of overseas convertible instruments and external commercial borrowings to the tune of $85 million.

Prime Focus took over UK-based VTR about two years ago for $55 million and successfully turned it around by outsourcing some of the post production work to the Indian unit. It hopes to replicate this success with the US-based entities as well.

Gaining exposure

International acquisitions offer Prime Focus the opportunity to work on more sophisticated projects, gain exposure to the latest technology and allow them to capitalise on the outsourcing opportunity in India. From a financial perspective, the very size of the companies proposed to be acquired may substantially boosts revenues.

Prime Focus has mentioned that the entities that it proposes to acquire will likely contribute 30 per cent of the consolidated revenues post acquisition. The share of Indian operations in overall consolidated revenues is likely to decline further, from the current 35 per cent.

The acquisition, if it goes through, will impact profitability in the near term. Also, even if Prime Focus manages to turn around the entities, margins for international operations will remain lower.

This is because a significant amount of the work still needs to be done onsite. While Prime Focus enjoys margins of over 60 per cent levels in the domestic business, as represented in the standalone numbers, on a consolidated basis, margins currently hover at about 30 per cent.

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