Private-equity firm Apollo Global Management LLC has agreed to buy CEC Entertainment Inc., parent to the Chuck E. Cheese’s brand, in a deal worth about $1.3 billion, including debt assumption, the companies said Thursday.
New York-based Apollo agreed to pay $54 per share for the Irving, Texas-based CEC — an 11.5-percent premium over Wednesday’s close of $48.43 per share and 24.6 percent over the $43.34 close Jan. 7, when Reuters first reported that CEC was seeking strategic alternatives.
Lynne Collier, a Dallas-based analyst with Sterne Agee, said, “The offer is essentially in line with our previously published base case valuation estimate of $54.79.”
She added that it was a “reasonable offer” of about 7.4 times earnings before income taxes, depreciation and amortization, given CEC’s historical trading range of about 5.5 to 6.5 times EBITDA.
CEC’s board unanimously approved the Apollo deal, but the parent to the 577-unit Chuck E. Cheese’s chain reserved the option of seeking a higher bid until Jan. 29.
“While additional suitors are possible, we believe that any interest is more likely to come from private equity rather than strategic buyers,” Collier wrote.
The board also approved a shareholders’ rights plan, or “poison pill,” that allows for shareholders to exercise an option if an investor other than Apollo acquires more than a 10-percent interest in CEC.
Michael H. Magusiak, CEC’s president and chief executive, said in Thursday’s announcement that the Apollo deal “recognizes the value of CEC’s global brand, strong cash flows and growth prospects while providing our shareholders with an immediate and substantial premium.”
In addition, he said, “Apollo brings significant industry expertise and financial resources, and we look forward to working with them to further grow CEC domestically and internationally.”
Earlier this month, Apollo said it had finished raising $18.4 billion for its eighth private-equity fund. Of that amount, $17.5 billion was from outside investors and $880 million was from Apollo and affiliated investors, including employees of the firm. As of Sept. 30, it had $113 billion under management.
Scott Ross, partner at Apollo Global Management, said in a statement, “This transaction with CEC gives us the opportunity to partner with the proven leader in family dining and entertainment. Across the U.S., and increasingly around the world, the Chuck E. Cheese’s brand represents quality, safe and fun family entertainment."
CEC encountered sales headwinds during and after recession. For its most recent third quarter, which ended Sept. 29, the company reported a same-store sales decline of 2.1 percent compared to the prior-year period. The company said birthday party sales had fallen precipitously in the period, declining 11 percent. Net income in the quarter fell about 5.1 percent, to $7.4 million, from $7.8 million in the same period of 2012. Revenue slipped 0.4 percent, to $195.9 million from $196.6 million.
In the Nation’s Restaurant News 2013 census, CEC ranked No. 99 in U.S. systemwide foodservice sales, with $390.3 million for the December 2012-ended year, down from $406.8 million in the 2011 period.
CEC owns and franchises 577 Chuck. E. Cheese locations in 47 states and 10 other countries and territories. The company owns 522 of those locations in the United States and Canada.
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