A business offered for sale including such information as price rationale and some pros and cons of the purchase.
THE BUSINESS: You've always dreamed of seeing your name in lights. So consider this chain of eight budget-oriented movie theaters, all in suburbs of major northeastern cities. The starring attractions include a computer system that helped the current absentee owner track ticket and concessions sales. The owner is ready for new challenges; his managers and regional directors should stay on for the next show.
OUTLOOK: On the whole, cinemas wouldn't win any Academy Awards for fast growth: ticket revenues rose by only 9% from 1990 through 1995. But budget chains do nicely, especially when they're the only low-cost player in town (as this chain is, in all its locations). Because this company focuses on second runs, its film-leasing costs are only 35% to 40% of ticket sales, compared with 90% or so for new releases. A new buyer might raise the $1.50 ticket price; the other way to script growth is to add locations, at $250,000 a pop.
PRICE RATIONALE: Unfortunately, the price may be as overinflated as Demi Moore's salary. Movie houses seating more than 1,000 typically sell at a multiple of six times recast earnings. But for small chains like this one, four times earnings is a better bet. This chain's erratic earnings pattern complicates the calculation. For a fair bid, potential purchasers might want to calculate the average of the past three years' earnings ($367,000). Multiply that by four, and start haggling at about $1.5 million. The chain will probably sell somewhere between there and $1.8 million (four times $450,000, the average of 1994 and 1996's rosier income picture).
PROS: You'll be a star if you can figure out how to raise prices while keeping budget-minded customers.
CONS: Pay too much for this deal, and you'll drown in more red ink than The Scarlet Letter did.
*Before depreciation, interest, taxes, and owner compensation **Estimated
--Jill Andresky Fraser
Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Colin Thompson, Zirkle & Co., 509-928-1737.