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Equity fund to harvest Grass Valley

Francisco Partners, a San Francisco-based private equity firm, has made a binding offer to Technicolor to acquire Grass Valley, writes David Fox.

Francisco Partners, a San Francisco-based private equity firm, has made a binding offer to Technicolor to acquire Grass Valley, writes David Fox.

The offer is for 100% ownership of the current Grass Valley Broadcast & Professional business, which would operate as Grass Valley, and values the company at $100 million. This includes the camera, content repurposing, editing, master control, modular products, news production, production automation, routing, servers, storage, and switching product lines including their entire product portfolios, the R&D centres and factories around the world, the sales & systems activities and customer support organisation worldwide, as well as the management and administrative support functions dedicated to the business.

The offer comprises: An $80m promissory note issued to Technicolor with a six-year maturity and bearing a capitalized interest of 5% per year. The amount of the note represents the value of the business minus the present value of retirement liabilities transferred; the transfer by Technicolor of a net amount of €20m of cash required for the ongoing management of the activity; the right for Technicolor to receive additional consideration from the buyer based on the potential future remuneration of the new owners of the disposed entity.

Based on the book value of the assets, Technicolor expects to register a loss for this disposal in its 2010 financial statements. “This binding offer is a key step in the largest of the disposals we decided to make as part of the strategic refocus of our activity portfolio. This will clarify and solidify our financial profile. This is also positive news for Grass Valley Broadcast employees and customers who will benefit from the engagement of a new shareholder recognized as a leader in technology-based businesses,” said Stephane Rougeot, Technicolor’s chief financial officer.

Grass Valley has been officially for sale for more than 18 months, when Thomson announced that it was restructuring to concentrate on services to content creators in the movie and media industries, particularly its Technicolor brand. This was necessary to alleviate debts of, at the time, €2.1bn. Thomson sold Grass Valley’s digital film transfer business to private equity investors almost two years ago. It had bought GVG, from Terry Gooding, in 2002 for an undisclosed amount.

Grass Valley has 1,457 employees (as of 30 June 2010) operating in 23 countries, and recorded revenues of about Eur272m in 2009 with an operating loss of about Eur52m, and consumed about €49m of cash (excluding changes in working capital).

The transmission and headend businesses, which are in the process of being separated from the Grass Valley Broadcast & Professional business, are not included in the offer. Technicolor will continue its planned divestiture of these businesses separately.

Francisco Partners is one of the world’s largest technology-focused private equity funds, with nearly $5 billion of capital under management. It invests in private companies, with transaction values ranging from $30 million to $2 billion. Grass Valley will be one of more than 50 technology companies in its portfolio.

“We are excited about this opportunity, as Grass Valley’s market leadership is clearly evident,” said David Golob, Partner at Francisco Partners. “The business has an unrivalled brand identity and company heritage, a long history of innovation, team members that are dedicated to their customers’ success, and an impressive product portfolio. We are looking forward to the opportunity to work closely with Grass Valley’s management to create a company that leverages the strong entrepreneurial spirit within Grass Valley, allowing them to achieve even greater success.”

“This is positive news for the company and our customers,” said Jeff Rosica, Senior Vice President and head of the Grass Valley Broadcast & Professional business (pictured). “We are encouraged that we are taking a major step towards completing the divestiture process with this binding offer from Francisco Partners. The opportunity to be part of Francisco Partner’s portfolio gives Grass Valley a solid foundation to continue to work tirelessly to maintain our core values of innovation, performance, and passion that have benefited our customers throughout the years. Our customers worldwide will continue to receive the high quality and service that they have come to expect from Grass Valley, with continued focus on raising the bar in our industry.”

Subject to final agreement, regulatory approval, and applicable notification requirements and, when it is requested, the prior consultation of staff representatives, it is expected that the transaction can be completed before the end of 2010.