BUSINESS

Cineplex seeks to grow its digital signage business through EK3 acquisition

07/17/2013 09:31 EDT | Updated 09/16/2013 05:12 EDT
TORONTO - Cineplex Inc. says its digital signage unit will get a good platform for growth in Canada and south of the border through the theatre company's proposed friendly takeover of EK3 Technologies Inc., announced Wednesday.

EK3 of London, Ont., has operations in 32 U.S. states, as well as Canada and other countries, that provides in-store digital advertising signs. Its clients include Tim Hortons, McDonalds, Walmart, Target, and the RBC and BMO financial groups.

Cineplex has been gradually expanding its role in the media business by showing advertising to theatre-goers before movies begin as well as getting into digital signage, a relatively new and growing part of the industry.

"The media business, or the straight advertising sales business, does not necessarily translate well across the border," said Gord Nelson, Cineplex's chief financial officer.

"But our Cineplex Digital Solutions business and the EK3 business, which is more of a service-based business, translates very well across the border."

Toronto-based Cineplex (TSX:CGX) announced Wednesday that it has made a conditional offer to buy EK3 Technologies Inc., a private company based in London, Ont.

Toronto-based Cineplex — best known as operator of Canada's largest chain of movie theatres — says EK3 will complement its own digital signage business, which has Scotiabank, CIBC, Rogers and other companies among its client base.

Cineplex says it will pay about $40 million up front plus the potential for performance-related payments that could push the total to $78 million.

"This is a business that is really ramping up, and you know, both EK3 and CDS have been growing our own infrastructure in order to handle this growing market," said Nelson.

"I don't think you should look at this from a cost synergies perspective. This is more about taking advantage of revenue opportunities."

The deal requires acceptance by holders of 97 per cent of EK3's shares and other conditions but Cineplex says it expects the transaction to close within four weeks.

Cineplex says the company will be renamed and operate as Cineplex Digital Networks, under the leadership of EK3 president and CEO, Nick Prigioniero.

Last month, Cineplex said it will acquire 26 movie theatres from Empire Company Ltd. (TSX:EMP.A) for $200 million in cash — 24 in Atlantic Canada and two in Ontario — giving it true national coverage.

The Empire deal will give Cineplex 78 per cent of the Canadian movie theatre business, as well as a presence in Canada's four most eastern provinces — one of the few areas of the country where it didn't have a major presence..

Shares of Cineplex were up 29 cents to $38 on the Toronto Stock Exchange at noon on Wednesday.