🔑 A blockbuster acquisition that flopped in just 3 years
Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:
- This blockbuster acquisition flopped in just 3 years
- He bought a small business - and sold it for a 24x return
🔑 This blockbuster acquisition flopped in just 4 years
Name a better business to get into during the 1980s than movie theaters.
It's tough to do.
Think of all the blockbuster hits of the 90s: Jurassic Park. Titanic. Forrest Gump. Star Wars Episode 1. The Lion King.
Friday night in the 90s meant going to the movies.
Box office revenue soared.
That's how Regal Cinemas went from a new business in 1989 to being acquired for $1.5 billion less than a decade later.
Let's take a look at the acquisition, how it was structured, and how it ultimately turned out.
Regal Cinemas began as a small regional movie theater chain in Tennessee.
They began opening and acquiring theaters in 1989, with a focus on modern multiplexes featuring stadium seating and advanced amenities, a new trend at that time.
By the mid-1990s, Regal became the second-largest movie theater operator in the U.S. with approximately 2,300 screens across 200 locations, mostly in the Southeast and Midwest.
Regal is a successful example of rolling up independent and small regional chains to build a national brand.
The company's success was fueled by the 1990s boom in movie theater attendance.
But there was a downside to that trend: The industry became highly competitive, with chains competing for prime real estate and facing rising construction costs.
The Acquisition
On January 20, 1998, Regal Cinemas was acquired for approximately $1.5 billion, including assumed debt.
The acquisition was led by two prominent leveraged buyout (LBO) firms: KKR and Hicks Muse
- Kohlberg Kravis Roberts & Co. (KKR): Founded in 1976, KKR was a pioneer in LBOs, known for mega-deals like the 1989 RJR Nabisco buyout. By the late 1990s, it was diversifying into media and entertainment. Just prior to the Regal deal, KKR acquired Act III Theatres (a 1,200-screen chain) for $660 million in December 1997.
- Hicks, Muse, Tate & Furst (Hicks Muse): A Dallas-based PE firm established in 1989, specialized in media and consumer investments. It acquired United Artists Theatre Circuit (UATC), a historic chain with about 1,800 screens, in a $650 million deal in 1997.
Key Terms
- Purchase Price: $31 per share for Regal's outstanding equity, totaling about $1.2 billion in cash, plus the assumption of roughly $300 million in debt.
- Structure: Each firm contributed $500 million in equity, with the remaining $1.2 billion financed through debt (a classic LBO model relying on high leverage).
- Post-Acquisition Plan: Regal was to merge with KKR's Act III and Hicks Muse's UATC, creating a combined entity with over 5,300 screens across more than 500 locations. This made it the world's largest theater chain at the time, surpassing rivals like AMC and Carmike Cinemas. The merged company would operate under the Regal Cinemas brand, with headquarters in Knoxville.
- Rationale: The deal aimed to achieve economies of scale, such as bulk film booking, centralized operations, and national advertising. It capitalized on the industry's "megaplex mania," where chains were aggressively building large venues to boost attendance and concessions revenue.
The transaction closed later in 1998, amid a wave of PE activity in entertainment. It was seen as a bet on sustained box office growth.
Immediate Aftermath and Operations
The new Regal entity expanded aggressively, adding hundreds of screens annually.
By 2000, it operated over 6,000 screens, benefiting from hits like Titanic (1997) and the emerging sequel era.
But their strategy involved heavy borrowing for construction, leading to a debt load exceeding $2 billion.
Industry-wide overbuilding created cannibalization - too many theaters competing in the same markets - while attendance plateaued due to home video competition and economic slowdowns.
Long-Term Outcomes and Bankruptcy
The deal's leverage proved unsustainable.
In October 2001, Regal filed for Chapter 11 bankruptcy with $1.9 billion in debt, amid a broader industry downturn that bankrupted several chains.
KKR and Hicks Muse lost most of their $1 billion equity investment, marking a high-profile PE failure.
Regal emerged from bankruptcy in 2002 after billionaire Philip Anschutz (through Anschutz Corporation) and Oaktree Capital Management acquired the business for about $200 million in a restructuring deal.
They merged it with the bankrupt United Artists and Edwards Theatres to form Regal Entertainment Group (REG), which went public in 2002.
Lessons
- Operate with a margin of safety. In this case, Regal operated like the explosive industry growth of the 90s would go on forever. But we all know that never happens - and Regal was overexposed when the industry became saturated and growth stalled.
- Diversify. Regal and other competitors kept spending aggressively to build and acquire new theaters, but they neglected to invest in the areas of the entertainment area that would actually grow in the 2000s (in-home entertainment mostly, including video games, movie rentals/streaming, and live sports broadcasting).
🔑 Roll-ups, Horizontal HoldCos, and SMB acquisitions
My YouTube channel has a little bit of everything in the business buying world.
I talked with a guy who owns 9 companies in totally different industries.
And I also sat down with someone who rolled up multiple software companies in a very specific niche.
Plus I have an interview with a business owner who bought a small flooring business and grew it organically before selling it.
No matter what type of business you're looking to buy, I probably have a story for you. Check out the interviews below.
Have a great day,
Sieva
P.S. - Are you hiring? Get started with top global talent from Somewhere (I'm a customer and investor)
Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.
