Cirque du Soleil acquires magic show company The Works Entertainment

Performers rehearse the 'swing to swing' part of the show before a dress rehearsal for the Toronto opening of Cirque Du Soleil's latest creation 'Luzia' on Wednesday, July 27, 2016 THE CANADIAN PRESS/Chris Young.

MONTREAL -- Cirque du Soleil Entertainment Group has made its third acquisition since coming under new ownership in 2015, taking over U.S. company The Works Entertainment in a bid to further diversify its audience.

The transaction price is $40 million, according to sources familiar with the deal, which is financed by a new US$120-million credit facility from the Caisse de depot et placement du Quebec -- a key Cirque due Soleil shareholder -- and the FTQ Solidarity Fund, a Quebec capital development fund.

The Works Entertainment is the company behind magic shows like "The Illusionists" and "Now You See Me Live," with a portfolio that also includes cabaret-style shows and circus art spectacles.

"We see the involvement of the Caisse and the FTQ Solidarity Fund as additional support for the people of Quebec," said Cirque chief executive Daniel Lamarre in a phone interview with The Canadian Press on Wednesday.

Rating agencies have questioned the company's debt levels over the past year. Last June, Standard and Poor's estimated that the Quebec company would have taken out a loan of US$95 million to complete the acquisition of U.S. family show producer VStar Entertainment Group.

In December, Moody's downgraded the Montreal-based company, citing underperformance in critical areas in an assessment that drove up borrowing costs for the 34-year-old circus troupe.

"We believe that the company's largely debt-funded expansion strategy increases the financial strain on core operations and leaves minimal flexibility to address operating weaknesses when they arise," the U.S. agency said on Dec. 18.

Asked about the downgrade, Lamarre said Cirque had checked with the rating agencies and that the credit rating of the company remained intact in the wake of his latest acquisition.

"There are a lot of things that come into play," he said. "I think what we are demonstrating with VStar and the Blue Man Group is that these acquisitions are paying off."

Cirque du Soleil, best known for its acrobatic performances, acquired the Blue Man Group in 2017 and VStar Entertainment Group last year.

In a note published Wednesday, Standard and Poor's confirmed that the company's credit rating remained intact, but that its outlook remained "negative." A downgrade could be triggered if the debt level exceeds 6.5 times the adjusted operating income, the agency wrote.

With little wiggle room, Lamarre said he hopes to continue building out Cirque du Soleil with an acquisition per year, should the opportunities arise.

Like the Blue Man Group and VStar, the addition of The Works Entertainment allows the company put on multiple productions in one city while targeting a different clientele, he said.

Despite scrapping a production in Macau in 2012 less than halfway through a 10-year contract due to sagging ticket sales, the troupe aims to launch a resident show later this year in the city of Hangzhou, about two hours from Shanghai.

"It's a new market," said Lamarre. "It's a marketing challenge. We are confident. For a first visit to China, we will have sold more than 300,000 tickets."

Since 2015, Cirque du Soleil has been nearly 60 per cent owned by the U.S. investment company TPG Capital. Chinese firm Fosun Capital Group has a 20 per cent stake and the Caisse 10 per cent. Company founder Guy Laliberte holds a 10 per cent share.