When RealD Inc. went public in 2010, success almost seemed inevitable. The Beverly Hills company was already the leading provider of 3-D systems to theaters and it was fresh off the wildly successful 3-D launch of 2009 blockbuster “Avatar.”
Before long, RealD’s value topped $1 billion and analysts raved about the company’s potential.
But 3-D movies and television never became as popular as RealD and its investors had hoped. So the company has decided to become private again.
Last week, RealD announced that it had reached an agreement to be bought for $551 million by Birmingham, Mich., private equity firm Rizvi Traverse Management.
The sale is expected to close by March; however, it still needs final approval from shareholders and a vote is likely to take place in February.
What led up to RealD’s decision to go private, analysts say, stems from the company’s failed attempts to diversify amid investors’ increasing impatience.
For example, the company unveiled a plan for a brand of large-format theaters – dubbed Luxe: A RealD Experience – in 2013 as an attempt to compete with other big-screen brands such as Imax. But that effort, launched last year, hasn’t panned out.
“Over the last few years, the company has spent undisclosed millions of dollars on diversification efforts that have failed to catch on,” Steve Frankel, a senior analyst at Minneapolis brokerage Dougherty & Co., wrote in a Nov. 9 report. “The Luxe initiative, which was designed to create a unifying brand of (premium large formats) for exhibitors, was dead in the water from the start without the backing of the major U.S. exhibitors.”
Eric Wold, an analyst at the San Francisco office of West L.A. investment bank B. Riley & Co., said it has been especially challenging for RealD to divert into new growth areas while enduring constant pressure of meeting quarterly expectations.
Last quarter’s earnings, announced the same day news of the sale was released, are just the latest example of the company falling short of expectations.
During its second fiscal quarter, ended Sept. 30, RealD sustained a net loss of $7.9 million, or -15 cents a share, on revenues of $38.5 million. Analysts had expected the loss to be -10 cents a share on revenues of $37.5 million.
But the decision to go private, Wold said, should help ease some of that pressure.
“By being private, the company is not handcuffed to attaining analyst estimates on a quarterly basis and can take more actions to position the company for growth over the long term even if that sacrifices profitability in the short term,” Wold said in an e-mail.
Indeed, RealD Chief Executive Michael V. Lewis has welcomed the perks of becoming a private company again.
“As a private company, RealD will have the flexibility and resources to further invest in our continued cinema leadership and visual technology innovation,” he said in a statement last week.
Lewis, who will remain chief executive after the sale closes, declined further comment.
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