Disney Buys LucasFilm and Makes Lots of $$$!

I thought that May the Fourth 🤖🌑🚀 would be a good reminder that one of Disney’s best acquisitions was also a great investment banking case study.

In 2012, Disney bought Lucasfilm for $4.05 billion, roughly half cash and half stock. By closing, the consideration was $2.2 billion of cash + 37.1 million Disney shares, worth about $4.1 billion using Disney’s $50.00 share price. The deal was expected to be dilutive to EPS in 2013 & 2014, but accretive in 2015.

What did Disney really buy? It wasn’t about earnings or even just movies. Disney’s purchase accounting assigned $2.6 billion to intangibles, primarily Star Wars IP, with an estimated useful life of roughly 40 years. Another $2.3 billion went to goodwill (essentially the value leftover after assigning to all other assets), justified by Disney’s expectations to create value by running Star Wars through its global machine: film, licensing, parks, games, TV, and eventually streaming (did I hear someone say “synergies”?).

The valuation math is interesting: According to Disney, Lucasfilm generated $550 million of operating income in 2005, the year Revenge of the Sith was released. Against a $4.1 billion purchase price, that implies roughly 7.5x that operating income figure. Unfortunately, it’s not a perfect multiple as Lucasfilm was private, so full LTM financials were not disclosed. And 2005 was a film-release year. But directionally? Disney was not paying for a one-time movie studio, it was buying a perpetual money-generating engine, so the multiple doesn’t matter as much.

Of course, the results have been meaningful:

- Five Disney-era Star Wars films generated $5+ billions at the box office (recouping their investment within 7 years)
- The Mandalorian became a flagship Disney+ launch title (my son can't wait for the movie this month)
- Galaxy’s Edge brought Star Wars into Disney parks
- Consumer products and licensing extended the franchise beyond theatrical releases

Even though it’s now 14 years ago it still makes a great case study in value creation via M&A, and how one investment can help broaden the product offering for the acquirer.

Happy Star Wars Day sand may the multiple be with you!