Weinstein Company Sale Collapses on Closer Scrutiny

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One of the first things commercial business brokers do when agreeing to help clients sell their business is ensure that everything behind the scenes is as it appears to be. That may not have been the case with the sale of the beleaguered Weinstein Company, as evidenced by the recent collapse of their negotiations with Colony Capital.

Colony Capital, a private equity firm that had originally agreed to buy Weinstein Company in the aftermath of co-founder Harvey Weinstein's ouster, backed out of talks after closer scrutiny of the boutique film company revealed some serious issues. Colony decided that the Weinstein Company did not represent good value for their investors.

Sufficient Debt, Lost Partners

Colony Capital chief Thomas J Barack Jr made it clear that he believed the Weinstein Company had "substantial value and growth potential" when Colony first made it clear they were interested in the acquisition. Barack was so upbeat that Colony agreed to provide an immediate infusion of cash to keep the studio going. But that deal fell apart on 26th October when substantial disorder was uncovered by Colony.

The New York Times says that despite what Colony found, they continued to pursue the purchase. By early November though, it was clear that whatever interest Colony still had was waning fast. An official announcement that they had backed out was finally made on 7th November.

At the heart of the Weinstein company's problems are significant debt and a growing number of film and studio partners cutting ties with them as a result of Harvey Weinstein's personal problems. As an M&A consultant, I can attest to the fact that having both problems simultaneously always spells trouble.

Preparing for Complete Collapse

What Colony Capital uncovered upon closer scrutiny seems to indicate that the film studio was in serious trouble long before allegations against Weinstein surfaced. Otherwise, there would have been no reason to reach out to Colony for a cash infusion and, when that fell apart, to look to the Fortress Investment Group for $35m to keep the Weinstein Company afloat through until January.

The New York Times says that the Weinstein Company has hired a law firm to prepare the company for bankruptcy. It appears the studio could be headed for complete collapse just after Christmas, which would mark the unfortunate end to what could have been a great media company.

The lesson here is one of doing due diligence prior to acquisition talks. Companies and their M&A consultants have to make sure absolutely everything is in order before talks begin because any potential buyer is going to do their own due diligence before signing on the dotted line.

I am an experienced M&A consultant with plenty of transactions under my belt. If you're thinking of selling your business, contact me for more information about how I can help. I can guide you through every step of the process – from evaluating your business to getting things in order to pushing through the sale.


NY Times – https://www.nytimes.com/2017/11/07/business/media/weinstein-studio-colony-capital.html

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Author: Tim Luscombe

Hello, I'm Tim and I'm a specialist in corporate finance for the owner managed business. If you've been approached to sell your business, or you are thinking of buying a business or you just want to know what your business ...