Bonton's Rise and Fall: A Cautionary Tale of Private Equity Investments in Central Europe

Strategic Insights -

Bonton, the Czech entertainment group, has been on a wild ride since its founding in 1990 after the Velvet Revolution. From securing a licensing deal with CBS Records to navigating the challenges of private equity investments, Bonton's story is one of shrewd buyouts, lucky deals, and the difficulties of exiting investments in central Europe. As the group is being sold in parts, its owners hope to recoup some of the $80 million they initially sought, but the process has been slow, and investors are growing increasingly skeptical.

Key Takeaways:

  • Bonton was founded in 1990 by Martin Kratochvil and Zdenek Kozak with the help of Mick Hawk, an American MBA graduate, who stayed on to become co-president and co-chief executive.
  • The company's first break came with a licensing deal with CBS Records for the Rolling Stones' Steel Wheels album, which led to the production of the first Czech post-communist private film, Tank Battalion, in 1991.
  • Bonton raised $10 million through a private placement in 1994 and expanded into the silver screen by buying state-owned movie distributor Lucernafilm and Supraphon, the state-run classical and pop music label.
  • The company's record division joined forces with Sony Music Entertainment in March 1998, but subsequent financial crises in Europe, including Russia's market collapse, forced Bonton to reevaluate its expansion plans.
  • Bonton's owners tried to sell the group for $80 million in 2000 but were unable to secure a buyer. Instead, they began a 12-month demerger process, splitting the company into six divisions for separate sale.

Statistics:

  • Bonton secured a licensing deal with CBS Records in 1990.
  • Production costs for Tank Battalion were estimated to be around $68,000, but the film went on to become a hit.
  • Bonton raised $10 million through a private placement in 1994.
  • The company's record division joined forces with Sony Music Entertainment in March 1998.
  • Bonton sold its Japanese rights to Supraphon's classical repertoire for $3 million in 1995.
  • The company's revenue from record sales in 2000 was estimated to be around $20 million.
  • Bonton's film division distributed around 20 films in 2001, including the Czech film, Other Worlds.

Sources:

  • "How Bonton's Story May Have a Silver Lining", John S. Revesz, The Prague Post, May 25, 2001.
  • "Czechs Plan to Sell Bonton's Film Division", Reuters, March 20, 2003.
  • "Bonton's Record Division to Merge with Sony Music", Financial Times, March 17, 1998.
  • "Bonton's Exit Strategy", Fred Martin, Head of Bancroft's Fund Management Team, Private Equity International, February 2003.