Investment Quebec Confirms Alliance Films For Sale

Shame Dinner Film Still - H 2011
Fox Searchlight Pictures

Shame Dinner Film Still - H 2011

The Quebec government arm cites a new investment focus for pacting with Goldman Sachs to shop the Canadian indie distributor and its 11,000-strong film library.

TORONTO – Details are emerging on plans by Goldman Sachs Capital Partners to shop its controlling stake in Canadian indie film distributor Alliance Films.

Investissement Québec, the investment arm of the Quebec government, on Tuesday confirmed it has joined with Goldman Sachs to shop Montreal-based Alliance Films to potential buyers of a major film library.

Montreal-based Investissement Quebec in a statement Tuesday said it is shifting its investment focus from entertainment properties to back natural resources projects and design, manufacturing and marketing of advanced materials and new technologies.

“Therefore, our investment in Alliance no longer fits our new strategy. In concert with Goldman Sachs, we decided to put Alliance up for sale at the appropriate time,” the Quebec investor, which holds a one-third stake in Alliance Films, stated.

Goldman Sachs Capital Partners has put a two-thirds stake in Alliance Films in play, a holding first acquired in 2007 as part of a wider $2.3 billion takeover of then Alliance Atlantis Communications with CanWest Global Communications Corp.

News of a possible Alliance Films sale first emerged Monday in a report in the Financial Times.

It has since emerged that Bank of Montreal has been shopping the Canadian indie distributor, which has satellite divisions in Britain and Spain, since early December.

Alliance Films also has a number of long-running output deals with U.S. partners like Relativity Media, Focus Features and Lionsgate Entertainment to release their product in Canada.

Those supply deals have brought the Canadian indie distributor boxoffice performers like The King's Speech and currently Shame.

But the sales process has been complicated by rival Entertainment One, which is also up for sale through J.P.Morgan and Credit Suisse, having a prized supply deal with Summit Entertainment.

That includes the Twilight movie franchise which continues to light up the Canadian box office.

That market backdrop has weakened Alliance Films traditional strangle-hold on the Canadian indie film distribution sector, and allowed Entertainment One to strengthen its own market share as both local companies compete against the major Hollywood studios at the Canadian multiplex.

Another factor impacting on Alliance Films’ chances of a sale are Canadian foreign ownership rules.

Another Canadian equity player, EdgeStone Capital Partners, in September 2007 took a 49 percent stake in Alliance Films to help Goldman Sachs meet foreign ownership requirements with its own 51 percent stake.

But a year later, Edgestone pulled out of the investment, and sold its stake onto Société Générale de financement du Québec (SGF), which was then the Quebec government’s investment arm.

Besides its investment, SGF had political motives for getting into bed with Goldman Sachs.

The government investment arm was already helping bankroll film and TV production in Quebec by Lionsgate Entertainment, and Alliance Films has a big Quebec operation with an extensive French language movie library.

SGF investing in Alliance Films was seen in part as a way to strengthen the Quebec film industry, which in 2007 was experiencing a drought in Hollywood production that has since eased.

The upshot is, as long as Ottawa keeps its stringent foreign ownership rules in place, selling Alliance Films and its extensive film library will prove a challenge.

Other private equity players kicked the tires at Alliance Films in 2007, and passed, only to see Edgestone Capital exit its own investment in short order.

Possible Canadian buyers of Alliance Films are thought to include Empire Theaters, Canada’s second-largest cinema chain, which is controlled by Donald Sobey, who was also a long-time director of the Alliance Atlantis Communications, and Entertainment One under a new owner with deep pockets.