Michael Wilkings should be smiling. Just two weeks ago, he pulled off his biggest deal to date: the acquisition of the legendary Hippodrome, a circus-themed nightclub that sprawls across an entire city block in central London. That followed a pair of high-profile conquests in December, when the budding bar mogul snapped up the Concorde and El Centro, both popular hangouts for Hollywood's glitterati.
It's an intriguing idea: Mr. Wilkings is looking to build an international entertainment company headquartered in the decidedly unhip town of Markham, Ont., and he's doing it in a novel way -- with cash raised in the public stock markets.
His Lucid Entertainment Inc. opened an eponymous club here last summer, a hypersensory mega-venue with four floors, nine bars and roughly 100 plasma television screens. It has another Disney-like club complex in the industrial city of Manchester, England, and there are plans to open several others in Europe and the United States.
But no one at Lucid is quite ready to grab the champagne and head to the VIP room. While the young urban set may be flocking to these late-night destinations in droves, investors appear to be heading for the exits. The company's stock was as high as $3.10 last spring on Canada's junior stock exchange, but it has tumbled in neat lock step with the recent shopping spree.
Right now it's treading water at around the 60-cent mark, and that makes Mr. Wilkings, the company's chief executive officer and one of its largest investors, more than a little nervous.
"It's a mystery to me," shrugs the 56-year-old London native.
"We've got great [earnings] we're profitable, we're growing. I really don't understand why the market is not more enthusiastic about our stock."
There are a couple of simple explanations. For one, Lucid remains a relative unknown in the financial world, and hasn't done a great job of attracting investors. The larger issue, though, is that it lacks a track record. It is growing all right, but it is issuing stock and taking on debt to fuel these ambitious plans, and has yet to prove that it can make serious money in Hollywood, London or even Toronto for that matter.
Everyone agrees that Lucid has nabbed some high-quality properties. Jennifer Lopez surprised Ben Affleck with a birthday bash at Concorde last year, while Britney Spears, Brad Pitt, Cameron Diaz and Paris Hilton are among the club's lengthy list of celebrity regulars.
Similarly, the 105-year old Hippodrome has played host to entertainers as varied as Ray Charles and Irving Berlin, and now treats patrons to flying trapeze acts and other big-top stunts to set itself apart in the London nightclub scene.
Hip-hop star Usher is said to be interested in partnering in a new Atlanta location, and businessmen in Moscow want to sign a franchise agreement with the Lucid name.
This is all good fodder for the press clippings, but investors need more than media sizzle. They need to be convinced that a small Toronto company can effectively manage U.S. and overseas properties in an industry renowned for what the financial industry calls "leakage." That's a polite way of describing employee theft and other unsavoury practices that can take a bite out of profits.
The challenge rests with Mr. Milkings, a tall, balding man who is dressed in what one assumes must be the requisite uniform of night-club operators the world over: black open-neck shirt, black pants, black blazer and high-lustre black shoes.
A bar scene veteran who first entered the business in 1975, when he moved to New York and helped a British company open 40 clubs in a stretch of just 40 months, he settled in Canada in 1979, and has always kept a foot in the business, most recently as a consultant to malls and property developers who were looking to create large-scale entertainment venues.
That job led him by chance into Manchester, where British billionaire Sir Richard Branson was looking to open an interactive gaming complex through one of his Virgin subsidiaries. When Virgin got cold feet, it brought in Mr. Milkings to devise a new concept for the space, and the first Lucid nightclub was born. Virgin helped finance the deal, and is now the company's largest shareholder with more than 11 per cent of its stock.
Virgin isn't in the game solely for the drinks -- what it really wants is customer information, said one source familiar with the matter. Lucid has compiled a database of about 20,000 Toronto clients, all in the demographic sweet spot of the advertising market: the 21-to 35-year-old category. A similar database is collecting information in Britain, and Mr. Milkings estimates, perhaps a little hopefully, that this side of the business may one day become more valuable than the actual clubs themselves. A lot of advertisers would want to partner with the company in an effort to reach this younger audience, he says.
"As people find out, the nightclub business appears to be glamorous and exciting and all that -- and it is -- but it's also complex," admits Mr. Wilkings. "And to run it well consistently, day in day out, is quite a feat of management, particularly on this scale."
Indeed, anyone who thinks of clubland as a glamour profession hasn't hit the bar at 11 a.m. on the morning after. The early shift begins scrubbing down the place in preparation for the next wave of 3,000 people who will wedge themselves into Lucid's massive jigsaw of a complex at Richmond and John on a Friday or Saturday evening. The odd orphaned drink dots the counters, while the pockmarked carpets suggest there are still a few patrons willing to flout the city's anti-smoking bylaw.
On this particular day, a group of Microsoft Corp. employees are convening on the main dance floor under a trio of disco balls and an overhanging DJ booth (Lucid rents out the premises to the corporate crowd during weekdays, a sideline that accounts for about 25 per cent of its revenue).
Countless other rooms, each with a distinctive décor, and each with its own bar, complete the maze, creating the distinct impression that this is not a place you are meant to leave.
Nobody disputes that a club like this can make a ton of cash. In an average week, the Toronto location will pull in $300,000 in revenue, and at busy times like Christmas, that figure can climb as high as $450,000, say people familiar with the figures. The question is whether the company can effectively run such a sprawling operation. Security is always an issue, and Lucid boasts it has implemented Las Vegas-style control systems at all of its major locations to prevent theft and ward off drug use.
Because the clubs are separated by thousands of miles, the company must also rely on local managers who understand their home markets. When Lucid bought El Centro and Concorde, for instance, it hired their Toronto-born co-founder, Shereen Arazm, as chief operating officer of its executive clubs division.
"They're businesses that can spin a lot of cash if operated properly," says Frank Mersch, a vice-president at Toronto hedge fund Front Street Capital. "When I first looked at Lucid my interest was really on the U.K. market, and the amount of money that was being generated in the U.K., because they just drink like fishes over there."
Front Street owns shares in Lucid, and has the option of adding to its stake through a recent loan to the company. Mr. Mersch acknowledges that the bar industry "isn't for the faint of heart," and that many investors tend to shy away from this business, yet he believes it can work if the company's executives run the business properly.
"If it's not, then we'll have to go and bring in new management," Mr. Mersch states matter-of-factly. "You've just got to get the formula right."
The bigger promotional problem confronting Mr. Milkings at the moment is how to pitch the company to investors. Lucid has failed to drum up enthusiasm in the stock markets, leaving it with an undersized shareholder base. The fact that no independent analysts track the company doesn't help matters.
"I don't think our story is very well understood," he says. "We need to do a better job of presenting our company to the financial community.
"We've really focused, almost exclusively, on building the business."
That latter point is a cause for concern among some investors, who believe the company should cool its heels for a while. Lucid has grown fast -- maybe too fast -- and the market clearly needs to see some results before it becomes a believer in the formula.
"I think this company ran before it learned to walk," says another shareholder. "It is a very good story, but it's only a story until you see a balance sheet, until you see financial statements, until you see a success."