The Ardent Leisure Group Ltd (ASX: ALG) share price is bouncing around today following news that the entertainment company has sold a stake in its Main Event business in the US.
Investors initially reacted positively to the news, sending Ardent shares flying 20.41% in early morning trade. However, it appears sentiment has turned, with the Ardent Leisure share price now trading 4.08% lower at the time of writing.
As its name suggests, Ardent is in the business of leisure and entertainment. It is the owner and operator of Gold Coast theme parks Dreamworld and WhiteWater World. And over in the US, Ardent owns a portfolio of family entertainment assets under the Main Event brand. Main Event offers activities like bowling, laser tag, and arcade games across 44 locations throughout North America.
Details of the transaction
This morning, Ardent revealed that US-based private investment firm, RedBird Capital Partners, will invest US$80 million to acquire a 24.2% interest in Main Event Entertainment.
The transaction values Main Event at an implied enterprise value (EV) of US$424 million and an EV/EBITDA multiple of 8x based on CY19 adjusted EBITDA.
As part of the transaction, RedBird has also been granted an option to acquire an additional 26.8% interest in Main Event at a future date. The option is exercisable between July 2022 and July 2024. Valuation will be based on normalised pro forma EBITDA at the time of exercising the option, subject to a minimum equity floor price.
According to Ardent, RedBird's invested capital will be used exclusively to support Main Event. The funds provide Main Event with the financial support and flexibility to adapt to the current challenging macro environment. What's more, the transaction provides Ardent with potential capital in the future in the event that the option is exercised.
The company noted there are no conditions to the transaction, nor shareholder approval. Therefore, the initial investment is expected to settle on 15 June 2020.
Along with the transaction news, Ardent revealed that Main Event has secured support from its lenders, including near-term covenant relief. It also stated that 28 of 44 Main Event centres have reopened following COVID-19 restrictions.
Management commentary
Commenting on the deal, Ardent chair Dr Gary Weiss said:
"We are excited by this new partnership with RedBird which not only reinforces Main Event's financial strength and liquidity, but also provides a value-added strategic partner who can help drive the Company's growth and expansion plans in the United States."
Meanwhile, Gerry Cardinale, managing partner of RedBird, said, "we have witnessed firsthand Main Event's growth as a leading brand in a resilient and fast growing family entertainment market. RedBird's focus on building high-growth companies in sports and entertainment and expertise in delivering premier content to consumers will be highly complementary to the Main Event platform as it looks to expand throughout the country."
