PE-backed Video Island in £80m merger

The UK online DVD rental business, backed by Benchmark Capital, Index Ventures, Cazenove Private Equity and European Venture Partners, is to merge with Lovefilm.

Private equity-backed UK online DVD rental library Video Island and rival Lovefilm International are to merge in an £80 million (€115 million; $140 million) transaction.
Video Island was launched in September 2003 with £3 million in Series A financing from Benchmark Capital and Index Ventures. The deal saw Index Ventures partner Danny Rimer and Benchmark Capital partner George Coelho join the company’s board.
A further £6 million was injected into Video Island in June 2004 in a second-round that saw Cazenove Private Equity join the company’s investors. Video Island then merged with UK DVD rental business Screen Select in August 2004 before European Venture Partners ploughed another £5 million into the company in June 2005.
Arts Alliance Media, a London-based provider of digital film distribution services in Europe, is the majority shareholder in Lovefilm.
Mid-market investment bank Altium advised Video Island and Lovefilm on the merger, which is subject to shareholder approval.
The 50:50 merger will give the combined group, consolidated under the Lovefilm brand, more than 400,000 subscribers and a market share of around 17 percent of all DVD rental transactions in the UK, as well as positions in Sweden, Denmark and Norway.
According to a statement, the new company plans to exploit synergies in marketing, technology and distribution to grow profits and accelerate expansion across Continental Europe in order to be more competitive against US rivals such as Amazon, Blockbuster and US online DVD rental business Netflix.
The combined group will offer over 70,000 titles and 1.2 million DVDs and video games, as well as a video-on-demand service. Both companies currently work with AOL, Channel 4, Dixons Store Group, Guardian Newspapers, ITV, MSN, News International, Odeon, Sainsbury, Tesco and Vue Cinemas, some of whom offer a fully white-labelled service.
In the year to December 2005, sales of the combined group were more than £25 million.