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Matthews Studio Group is on a buying binge. The Burbank-based supplier of lighting and grip equipment has acquired six companies in the past year and a half, diversifying into video equipment and theatrical supply rentals and nearly doubling its revenues as a result. The idea, according to company executives, is to have multiple sources of business, rather than relying on the film trade alone as Matthews has for most of its history. “By putting our eggs into different baskets we have a better chance to succeed and not be dependent on film,” said Carlos D. DeMattos, chairman and president of the company, which is publicly owned and trades on the Nasdaq. Matthews’ most recent acquisition came in April, when it bought Four Star Holding Inc. and its subsidiary Four Star Stage Lighting, a theatrical equipment supplier in New York that controls about 85 percent of the market nationwide, according to DeMattos. The Four Star acquisition is the company’s fourth in the theatrical equipment and supply industry. Last year, Matthews acquired Olesen of Hollywood in L.A., Centerline Stage & Studio Lighting in Phoenix and Media Lighting Supply in Miami. Last month, Matthews also signed a letter of intent to acquire Canadian Staging Projects Ltd., a theatrical equipment rental company based in Toronto. The company’s expansion into video equipment began last May with the acquisition of Duke City Video Inc., which has warehouses in Albuquerque, Dallas and Long Island. Meanwhile, Matthews has been adding to its film equipment warehousing operations. With the acquisition of Cincinnati-based HDI in April 1997, the company now has operations in Ohio, Kentucky, Pennsylvania and Indiana. Matthews has a presence in the Phoenix, Seattle, Nashville and Miami and Charlotte, N.C. markets, as well. “Two to three years ago, they were very much on the West Coast and the East Coast,” said Shawn Hackett, vice president of investments at Princeton Securities Corp. in Princeton, N.J., who recommends Matthews as a strong buy. “Now they’re pretty much all over the country and within one day’s driving distance from anywhere a movie company might produce. That’s a significant advantage over other players.” Still, Matthews reported essentially no earnings for the first quarter ended Dec. 31, compared to $40,000 (4 cents a share) for the like period last year. Revenues for the quarter climbed to $1.3 million from $930,000 for the like period in 1997. Company executives said that the first and second quarters are typically slow; last year was an exception, when company performance was boosted by the production of “Titanic.” “We make our money in the fourth quarter,” said Ken Kramer, the firm’s vice president for development and operations. The company’s first- and second-quarter results, which have not yet been released, also were impacted by the “significant capital investment” the company made in its new video division, Kramer said. In 1997, Matthews’ net income was $1.5 million (15 cents a share) compared with $1 million (10 cents a share) a year earlier. Revenues were $46.3 million vs. $30.2 million in 1996. The stock is trading in the $5.75 range up from $2.50 two years ago. Matthews’ acquisitions are designed to broaden the company’s geographic reach, as well as the range of services it offers in each of those locations. “We look for a company that has a lot of local-market expertise,” said Kramer. “If they bring the local market to us, we can supplement it from a national basis, so that’s what makes two plus two equal five.” The theatrical supply business opens distribution channels for the company not only in theater, but for hotels and convention centers, which use theatrical lighting in trade shows and other presentations, and schools and churches, which their own shows. By supplying video, the company has a pathway into cable television and live broadcasts. In addition, each warehouse can now house equipment for the full gamut of needs of any of these distribution channels. “It’s something a lot of other industries try to do,” said DeMattos. “In our case, we need to buy the essential ingredient and the right companies to service clients from soup to nuts and to get into multiple locations at the same time.” The ability to cross-market its lighting and equipment “is a big reason these companies (Matthews has bought) have come on board,” said Hackett. “It allows each company to expand its services.” The lighting and equipment business requires large capital outlays that most others in the business, typically mom-and-pop operators, can’t afford to make. It took Matthews nearly 10 years to get access to the necessary funding. The company’s initial public offering in 1989 raised only $2 million, limiting Matthews to small acquisitions. Then, in 1994 Matthews secured a credit line with Chase Manhattan Bank and closed a deal making the huge international investment banking firm ING Equity Partners L.P.I. an equity partner in the company. With ING backing and a credit line through Chase that now stands at $80 million, Matthews was able to complete a number of larger deals. Its largest, Four Star, totaled $29 million in cash and the assumption of some debt. Duke City was a $12 million purchase that included cash, stocks and the assumption of some debt. “It’s unusual for a company of (Matthews’) size to get that kind of credit,” said Hackett. “Clearly, there’s opportunity there.” DeMattos estimates that the combined market for film, video and theatrical equipment is $2 billion. “I believe we can go very close to $500 million in gross revenues,” he said.

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