A year after Dave & Buster’s Entertainment Inc. changed ownership, the company has filed plans for an initial public offering to raise as much as $150 million to pay down debt.
The Dallas-based chain of 56 big-box restaurant-entertainment complexes, which earlier this month opened a new showcase store in Orlando, Fla., did not state how many shares it will offer or the price of each share in its preliminary filing with the Securities and Exchange Commission.
Dave & Buster’s was taken private in 2006 by Wellspring Capital Management, which last May sold the company to Oak Hill Capital Partners in a $570 million deal. Both companies are private equity firms.
John A. Gordon, a principal with the Pacific Management Consulting Group of San Diego, Calif., said: “There is no doubt that Oak Hill perceived an upside and the ability to cut debt via the IPO. Generally, they wait longer.”
However, Gordon said investors are exhibiting some appetite for IPOs in companies like restaurants that can “throw off regular earnings like a bond.”
A Dunkin’ Brands Inc. IPO currently is pending.
“Everywhere I go it is said there is pent up investor demand, as so many restaurants have gone private,” Gordon said, adding that an IPO would help Oak Hill pay interest expenses that are liking eating up store margins.
“Their store margins [22 percent] look good and with an upside [82 percent entertainment component profit contribution],” Gordon said. Check averages at Dave & Buster’s units are around $20 per person.
Since the Oak Hill-management buyout last year, Dave & Buster's has trimmed the target size of its stores to a range of 35,000 square feet to 40,000 square feet, reducing back-of-the-house space and maxing out billiards and other features for more profitable redemption games. Dave and Buster’s units range from 29,000 square feet to 66,000 square feet.
In its SEC filings, the company said the brand is underpenetrated, and suggests that studies, both in and out of house, would allow 150 stores in the United States and Canada.
Dave & Buster’s plans to open three stores this year and three or four in 2012.
However, Gordon cautioned: “In my opinion, their growth prospects are only fair in United States [and] better internationally because of their needed site profile. They need big, regional, super-center sites, and as you know, no more of those are being built.”
Dave & Buster’s currently has stores in 24 states and Canada.
The SEC filings said after the IPO, majority voting power in Dave & Buster’s common stock will remain with company board directors and management, along with Oak Hill.
The IPO will be underwritten by Goldman, Sachs & Co., Jefferies & Co. Inc. and Piper Jaffray & Co. The company is seeking the ticker symbol “PLAY” on the Nasdaq or New York Stock Exchange markets.
Contact Ron Ruggless at [email protected].
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