Relativity's Ryan Kavanaugh Nears New Finance Deal With VII Peaks Capital (Exclusive)

Ryan Kavanaugh - H 2015
AP Images/Invision

Ryan Kavanaugh - H 2015

VII Peaks Capital will inject $250 million into the media company, preparing for a 2016 IPO.

Ryan Kavanaugh’s Relativity Media has found a new investor in VII Peaks Capital, which is nearing a deal to inject $250 million into the media company as it moves forward with plans for an IPO, according to informed sources.

Kavanaugh is also said to be investing another $25 million of his own money in the company as part of the deal.

Bay Area-based VII Peaks Capital, which is not a traditional Hollywood financial backer, confirmed the investment in Relativity in a statement to The Hollywood Reporter.

“We have executed a deal which will bring significant equity into Relativity ahead of a planned IPO. Relativity is in a better position as a diversified global media company than ever, and it remains under Ryan’s leadership,” Gurpreet Chandhoke, managing partner and chief investment officer at VII Peaks said in the statement. Relativity confirmed the investment through a spokesperson but declined to comment further.

On its website, VII Peaks, headed by Chandhoke and managing partner Stephen F. Shea, describes the companies it typically invests in as “those that have a highly-leveraged capital structure and face a near-term liquidity risk from their outstanding debt, but that are fundamentally sound businesses with attractive long-term prospects and good management teams."

Separately, a source close to Relativity says it has struck agreements with its lenders to extend its long-term debt as it spruces up its balance sheet in preparation for the IPO, expected to take place during the second or third quarter of 2016.

Relativity is coming off a disappointing 2014 at the box office, triggering speculation within Hollywood over whether Kavanaugh would be able to remain in control of the company he founded in 2004.

Kavanaugh, who serves as CEO, remains the company's largest individual shareholder, while Elliott Management remains a minority investor. Elliott sold a portion of its stake in the company in 2012 to supermarket magnate Ron Burkle, who then joined the Relativity board. And last year, Steven Mnuchin, Dune Capital Partners IV and Kavanaugh bought out much of Elliott’s stake, with Mnuchin becoming a non-executive, co-chairman of Relativity, with an eye toward advising Kavanaugh how to ready the company for the IPO.

Relativity released eight films in 2014. Its domestic top grosser was Earth to Echo, with $40 million, while the action film 3 Days to Kill pulled in $53 million worldwide. But while the studio failed to ignite a blockbuster or launch a new franchise, those familiar with its operations say five of its eight 2014 films were profitable, and that all three of the movies it has released so far in 2015, including the Kevin Costner starrer Black or White and horror pic The Lazarus Effect, have been profitable for the company. Relativity has explained its business model as one that aims for singles and doubles, relying on foreign pre-sales to minimize risk.

Relativity’s upcoming slate includes another horror film Before I Wake, opening May 8, the comedy The Bronze (which opened this year’s Sundance Film Festival, set for July 10, and the heist comedy Masterminds, starring Zach Galifianakis, Owen Wilson, Kristen Wiig and Jason Sudeikis, which is coming Aug 7.

Relativity’s films are released through a joint marketing and distribution venture, launched last year by Relativity Media and EuropaCorp, with the latter paying approximately $130 over a six-year time frame for its 50 percent stake in the joint venture. Each company directly distributes its own films through the venture. Tommy Gargotta was recently named president of theatrical marketing, reporting to Relativity president Tucker Tooley and EuropaCorp CEO Christophe Lambert.

Relativity also has been active in Asia, striking a series of joint ventures in India and China, where it has developed various partnerships and joint ventures with China Film Promotion International, Jiangsu Broadcasting Corp. and SeedShine Capital.