CEC Entertainment Inc., parent to the Chuck E. Cheese's and Peter Piper Pizza brands, has agreed to merge with Leo Holdings Corp., a special purpose acquisition “shell” company founded by executives of British private-equity firm Lion Capital, with the intent of going public again later this year, the firms announced Monday.
The deal is expected to be completed in the second quarter, and CEC owner Apollo Capital Management LLC, which took Chuck E. Cheese’s private and bought Peter Piper Pizza in separate 2014 deals, will retain 51% ownership in Leo Holdings, which plans to change its name to Chuck E. Cheese Brands Inc. and offer shares on New York Stock Exchange.
The companies said the merger of CEC parent Queso Holdings and Leo Holdings has an enterprise value of $1.4 billion. The 750-unit CEC, which includes reported sales of $896 million in fiscal 2018. The boards of both Queso and Leo has approved the proposed deal, and Leo shareholders will vote on the plan.
“CEC has proven resiliency,” said Lea Lyndon, chair and CEO of Leo Holdings and a founder of Lion Capital, in a webcast Monday. “It’s been around for 42 years. … This is a very defensive play with very attractive cash characteristics.”
Lion Capital, which in February 2018 raised $200 million for the Leo Holdings SPAC, has invested in such foodservice brands as Round Table Pizza, Marble Slab Creamery, Great American Cookies, Gordon Ramsay restaurants and Wagamama.
Apollo’s investment holdings include such foodservice brands as Qdoba, CKE Restaurants and Sprouts Farmers Market.
Upon completion of the merger, Lyndon said he and Andy Jhawar, a senior partner at Apollo and head of its consumer and retail group, would serve as co-chairs of Chuck E. Cheese, and Tom Leverton, CEO of CEC for the past five years.
Leverton, on Monday’s call, said the company plans to increase the number of visits per year and boost spending through the “All You Can Play” platform. He said the company also is working to expand unit average unit volumes beyond the current $1.6 million with a 12% sales lift (to about $1.8 million) by extending the ongoing remodel program, which began in 2017 and added 25 more restaurants in 2018. CEC plans to reimage about 60 more locations this year.
CEC also plans to expand its international development, which has 109 units abroad. “Our first India location will open in 2019 or early 2020,” Leverton said, “providing us with a great gateway to Asia.”
CEC reported preliminary same-store sales increases of 7.7% in the first quarter, following a 3.3% increase in the fourth quarter and a 2.2% increase in the third quarter of 2018.
CEC has 606 Chuck E. Cheese’s units in 47 states and 14 countries. The company has 144 Peter Piper Pizza units in six states and Mexico.
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