in association with Ernst & Young:

Vue’s recent management buyout has the UK’s second largest cinema chain poised to play a leading role in the transformation of cinematic entertainment. Having already taken the business from a garage-based start-up to a chain of close to 60 multiplexes, chief executive Tim Richards believes the MBO will further enable Vue to capitalise on the opportunities arising from the new era of digital technology. 'It’s the only thing that keeps me awake at night – the excitement,' he says.

Richards built up his extensive experience with the United Cinemas International chain and then Warner Brothers, where he dramatically expanded the company’s international presence. With private equity backing from Boston Ventures, in 1998 he set up his own company, then called SBC International Cinemas. Richards wanted to develop a cinema chain that would meet the needs of all customer groups – the core base of young people, but also the greying baby boomers, an increasingly important demographic for cinemas.

'I left my corner office at Warner Brothers for the glories of my garage for two years,' Richards recalls. 'I had a single shareholder and we were pursuing an organic growth model which was going to be supplemented by acquisition.' Clarity Partners and Legal & General Ventures also became private equity backers in 2003, when SBC changed its name to Vue Entertainment and acquired the Warner Village Cinema chain in the UK. That deal took Vue’s multiplex cinema tally to 42. Having completed subsequent acquisitions and new-build projects, Vue Entertainment now has a portfolio of almost 60 cinemas and plans to build another 16 to 20 in the next few years.

This June Richards and his team executed a management buyout, enabling the three existing private equity backers to exit. Into their place has stepped the Bank of Scotland, with whom Richards has negotiated an integrated finance deal valued in the region of £350 million. This will enable Vue to begin a new phase of development. As part of the deal the bank has taken a minority stake, while the management team together holds 51 per cent.

The buyout marks a new stage in Vue’s evolution which will focus on harnessing the groundbreaking developments in cinema technology. 'A wholesale change to digital is about to take place across the whole cinema circuit, which is going to be one of the most exciting, revolutionary things to hit the business – probably ever,' Richards says. 'It will be life transforming, absolutely life transforming.'

The incoming digital revolution is the reason Richards opted to call his company Vue Entertainment, rather than Vue Cinemas. 'We are testing different business models right now,' he explains. One of those models centres on music. Vue has already hosted live concerts to mark DVD launches for bands like Queen and Green Day. 'We recently had Pink Floyd in here as well,' Richards says. 'That’s just the tip of the iceberg. We will eventually be able to host music concerts and link up across the country. A cinema auditorium has wall-to-wall, floor-to-ceiling screens and digital surround sound. People don’t realise that it is a sound stage; it is acoustically perfect.'

Digital technology can also be used for video games. 'We are going to test video games in cinemas this year,' Richards says. 'The technology is with us right now to have up to 100 characters on screen at once, with a wireless LAN in the auditorium and wireless game pads. With a digital projector you can shoot people, chase people, race them, and have fantasy games. And the winners from local cinemas can compete nationally and even internationally on the same screen.'

In addition to the digital technology, the new 3D experience is 'an immersive experience which is second to none', Richards says. 'It’s like nothing you have ever encountered with 3D before. Customers will pay more for it, because it’s a different experience. When you see a football kicked out at you into the audience off the screen in 3D, you don’t only feel like you are there, you feel like you are in the game.'