STX Entertainment raises $700 million in new capital

STX Entertainment, the upstart studio known for films such as “The Upside� and “I Feel Pretty,� has raised $700 million in new capital to fuel growth.

The new funds for the 5-year-old Burbank studio, founded by Robert Simonds, are a combination of equity and refinancing of debt, STX Chief Financial Officer Andrew Warren said in a Monday morning memo to employees. The round was led by TPG Growth and Chinese private equity firm Hony Capital.

“This financing represents another major milestone for STX and shows the unwavering support and enthusiasm of our investors,� Warren said in the email. “There is no question this transaction is a direct acknowledgment of your achievements.�

The additional capital, which includes more than $100 million in equity, will help STX release more movies, grow its TV business and pursue acquisitions, said a person familiar with the matter who was not authorized to comment. STX is considering deals to purchase assets including film libraries and international television production companies, the person said. The company plans to release 15 movies this fiscal year, compared with about 10 in 2018.

The new financing round is a confidence boost for the small studio that launched in 2014 with a counterintuitive strategy of focusing on mid-budget, star-driven films at a time when larger studios have been investing heavily in big-budget franchises. STX makes and releases movies with budgets between $20 million and $80 million.

It’s a challenging time for smaller companies in the entertainment industry, as independent studios face massive competition from the likes of Walt Disney Co., AT&T-owned WarnerMedia and Netflix. Los Gatos-based Netflix on Monday hired away STX executive David Kosse to grow its international film business.

Santa Monica studio Lionsgate has cut about 45 jobs so far this year as it deals with competitive challenges. Last year, the film division of Global Road Entertainment, which had ties with China, filed for bankruptcy protection from creditors.

STX hasn’t had many breakout box office hits since it launched. But the company says that its business is growing despite the difficult market and that the vast majority of its films have been profitable. STX offsets risk by pre-selling international rights and taking advantage of tax incentives for production.

The company had a recent hit with “The Upside,� starring Kevin Hart, which it released in partnership with Lantern Entertainment. Its upcoming releases include next month’s “The Best of Enemies,� starring Taraji P. Henson and Sam Rockwell, and the animated children’s comedy “UglyDolls.�

Warren, in his email, said revenue had grown 125% in fiscal 2018 compared with the prior year, adding that the studio had “firmly established a winning model for profitable films, with 12 of our last 14 films in profit.�

STX is also known for its deep ties to China, the world’s second-largest box office market. Investors in its latest round of financing include Hong Kong telecom business PCCW. The company’s early major backers included Chinese technology giant Tencent, which did not participate in the most recent funding round.

Last year, the studio made plans for an initial public offering in Hong Kong that could have raised $500 million, valuing the company at more than $2 billion. But STX canceled those plans just months after filing its prospectus because of severe turbulence in the stock market there.

STX’s equity backers also include Madison Wells Media and John Malone’s Liberty Global. Its lenders are JPMorgan, Bank of America, East West Bank, Union Bank, Comerica, CIT, Aperture and Sun Trust.

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