vancouver: A private offering for Vancouver-based Rainmaker Digital Pictures was ‘significantly’ oversubscribed because of investor interest in the film industry and high technology, say both insiders and observers alike.

After going public May 10 on the Montreal Stock Exchange, Rainmaker originally intended to raise a maximum $7 million to finance the acquisition of equipment, improve leaseholds, pay out other debt and build a war chest of working capital.

But street rumors suggest that fundraising efforts uncovered investor interest of about $20 million – a tantalizing pot of cash, but one that would have diluted the company’s share structure too much. The compromise was a revised private offering of $8 million that is expected to close by Aug. 18, says Rainmaker’s chief financial officer Tom Locke.

Rainmaker – formed in March as the parent company of Gastown Post, Gastown Labs, Rainmaker Interactive and Rainmaker Imaging – is one of the largest fully integrated digital post-production facilities in Canada. It listed at $3.95

The new financing offers investors a unit worth $3.10 and is made up of one common share and a special warrant. Two special warrants can be converted into one common share for $3.65 before the end of 1997. Rainmaker traded on Aug. 3 at $3.50, down five cents per share.

Impressed by high tech

Investors – many of whom are institutional investors such as pension funds – are intrigued by Rainmaker’s ability to provide high-technology, digital imaging and compression and interactivity, Locke explains. Because Rainmaker merges the culture of film and video with new forms of communication, the company becomes a one-stop shop for clients looking for everything from developing and editing to sound, special effects and, now, digital media like cd-rom.

As an independent Kodak Cineon System site, Rainmaker can now create the special effects seen in, for example, the feature film Forrest Gump. Recent examples of Rainmaker’s work include special effects in Highlander, the Series and television ads for B.C. Hothouse vegetable products in which the client’s brand sticker dances around tomatoes and peppers to avoid being peeled off.

Market analyst Simon Lussier of Montreal-based Sprott Securities placed a buy recommendation on the stock in a report prepared in May before the brokerage house became Rainmaker’s underwriter.

‘Rainmaker’s ability to compete successfully in the post-production industry is a result of combining recently acquired hardware and software, skilled personnel and the 15-year track record of the Gastown companies,’ he says.

‘Marketing synergies’

He anticipates the share price to jump because of expected growth in sales and earnings prompted by the company’s ‘marketing synergies’ and diversity of services. He also points to Rainmaker’s profitable history (through Gastown Post, Western Canada’s first digital post-production facility founded in 1979), the expected demand for digital effects for film, television and commercials, and the company’s software that offers effects, digital compression, imaging and interactivity.

He also likes Rainmaker’s proximity to the strong b.c. production industry and the advantages of the Canadian dollar exchange for visiting u.s. filmmakers.

Sales are forecasted to jump from $9 million in 1995 to $15 million in fiscal 1996.

Lussier, however, points to risks including a slow transition by the market toward the digital services offered by Rainmaker, and the competition presented by Pacific Video Canada, a subsidiary of a post-production company in Los Angeles.

Wayne Sterloff, president and ceo of government funding agency British Columbia Film, says he isn’t surprised by the investor interest because Rainmaker’s movie-industry deal isn’t tied to a tax shelter.

‘We know that investors think a lot of the film industry as high profile and highly profitable. But tax shelters don’t offer them the back-end potential that they get from a syndicate of sophisticated investors or a full-blown public offering.’