The amusement park operator has shopped itself to private equity firms, according to a story this morning in the New York Post.
Among the firms approached was the Blackstone Group, which helped fund the creation of Merlin Entertainment Group, which combined Legoland with Madame Tussaud's. Blackstone also holds a stake, with NBC Universal, in the Universal Orlando resort.
The private equity firms, including Blackstone, have been hestitant to buy, according to the Post, citing the presumed cost of the deal. The Post reported that Cedar Fair, which paid $1.2 billion in cash for Paramount Parks last year, has a market capitalization of $1.5 billion and $1.8 billion in debt. Using a formula based on Cedar Fair's current cash flow, the paper estimates the firm could elicit a price of $3.3 billion to $4 billion.
Why sell? Well, the deal would be contingent on a pledge to retain Cedar Fair's current management team. (Which preserves their jobs in a competitive out-of-home entertainment market.) Plus, the infusion of cash would help the company handle its debt without falling into a pre-Snyder-Six Flags-type problem of having to sacrifice capital expansion.
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So when you sell your business to them, you can generally expect that you will be servicing more debt, not less. Granted, a smart equity firm will leave enough money in to run the business well but this may mean a lower selling price than Cedar Fair would hope for. If the buyer can't draw out as much cash, they won't pay as much.
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In a lot of cases, a buyout like this one is the first step in taking the company public. The company used to be public, but changed to a limited partnership in the 80's after a couple of takeover scares. Wouldn't be surprised to see that happening soon.