Chuck E. Cheese's is going public again. The move, expected to close in Q2, marks the first time a restaurant company has entered the public market in four years.
CEC Entertainment and Leo Holdings Corporation, a publicly traded special purpose acquisition company, announced Monday that Leo and Queso Holdings, Inc., the parent company of CEC, along with Queso’s controlling stockholder, Apollo Global Management, entered into a definitive business combination agreement.
Special purpose acquisition companies have no assets but use the proceeds from an IPO, with bank financing, to buy and take privately held consumer companies to the stock exchange. It will trade under the ticker symbol CEC.
CEC Entertainment, which also owns Peter Piper Pizza, said it expects to have a $1.4 billion enterprise valuation following the merger, or seven-and-a-half times the company’s estimated 2019 adjusted EBITDA of about $187 million. The company is using $300 million in cash from Leo for debt. Excluding capital lease and sale-leaseback obligations, CEC Entertainment had $978.9 million in outstanding debt as of December 30, per company filings.
London-based Leo Holdings will change its name to Chuck E. Cheese Brands Inc. once the move is complete.
The company said CEC’s current executive management team would remain in place. Also, the Apollo funds will not sell any shares in the transaction and will continue to be CEC’s largest shareholder with about 51 percent ownership post-closing.
“I am extremely proud of everything that we have accomplished at CEC, and we are pleased to be seeing significant momentum in recent same store sales trends,” Tom Leverton, chief executive officer of CEC, said in a statement. “The executive team is eager to work with Leo as we continue to aggressively pursue opportunities in the next stage of our Company's evolution. Our future growth plans are based on enhancing the total guest experience, unlocking operational investments, growing and upgrading our venues, and opportunistically pursuing M&A initiatives."
Apollo, which also scooped up Qdoba for $305 million in December 2017, took CEC private for roughly $948 million in 2014. It bought Peter Piper Pizza in October of that year.
CEC is riding a run of same-store sales momentum, it said.
- Q1 2019: 7.7 percent (preliminary)
- Q4 2018: 3.3 percent
- Q3 2018: 2.2 percent
- Q2 2018: 1 percent
The company had revenue of $896 million last fiscal year across 750 units systemwide (606 Chuck E. Cheese's locations across 47 states and 14 countries and 144 Peter Piper Pizza units in six states and Mexico).
Chuck E. Cheese's units are averaging $1.6 million, while Peter Piper Pizza stores are at $1.8 million per restaurant.
"Having had almost 30 years of experience of investing in the consumer sector, it is clear to me that the iconic Chuck E. Cheese brand is a part of Americana. Rarely do brands possess such rich heritage and imbue such fond memories across generations. In CEC we have secured an extremely attractive acquisition,” added Lyndon Lea, chairman and CEO of Leo Holdings. Lea is joining the company’s board of directors and co-chairman with Andrew Jhawar, senior partner and head of the consumer and retail group at Apollo and chairman of the board at CEC Entertainment.
Lea added Chuck E. Cheese's is attractive due to the low-risk growth nature of its existing site refurbishments. “The opportunity becomes even more convincing when coupled with the fact that the business has proven resiliency as evidenced by its performance during the last three economic downturns,” he said.
“Since Apollo first acquired the company in 2014, CEC has made significant capital investments in PlayPass technology, store remodels, and the rollout of the All You Can Play initiative which have positioned CEC for tremendous continued growth opportunities going forward,” added Jhawar.
The All You Can Play initiative allows customers to buy a chunk of time to play instead of tokens. The company previously said it plans to reimage 60 stores by the end of the year, which would bring the total to 92 out f the 515 company-run locations. Read more about the redesign here.
The changes have helped boost sales. Prior to the All You Plan announcement in July 2018, comps fell 5.1 percent in the first quarter. It then launched nationwide delivery through DoorDash, Grubhub, and UberEATs that May at more than 345 restaurants. The company also unveiled a More Cheese Rewards program and a gaming app “Chuck E. Cheese’s Racing World.”
CEC was reported to be considering an outright IP in 2017, and put itself up for sale the same year.