Blackstone Group LP (BX:US), the buyout firm taking SeaWorld Entertainment Inc. public today, is valuing the theme-park operator more expensively than its peers after refusing takeover offers for the company.
The initial public offering is seeking as much as $702 million, regulatory filings show. The midpoint of the price range values Orlando-based SeaWorld’s common stock at about $2.4 billion, or 21 times last year’s free cash flow, or operating cash flow minus capital expenditures, according to data compiled by Bloomberg. That’s at least 64 percent more than rivals Six Flags Entertainment Corp. and Cedar Fair LP.
Blackstone chose an IPO for SeaWorld, snubbing takeover bids from Apollo Global Management LLC and Onex Corp., because the firm expects the offering to yield better returns over time than a sale, a person familiar with the matter said earlier this year. SeaWorld may be hard-pressed to justify the premium because the company and its peers operate in a mature business that’s probably not ripe for large-scale expansion, said James Hardiman, an analyst at Longbow Research LLC.
“From an attendance perspective, they’re pretty slow growers,” said Hardiman, who covers theme-park operators for the Independence, Ohio-based firm. “I don’t know that there’s any low-hanging fruit that would make SeaWorld’s growth accelerate after it becomes public.”
SeaWorld attendance increased 3.2 percent in 2012 to more than 24 million visitors, compared with about a 6 percent increase at Six Flags. (SIX:US) Free cash flow is a better measure of operating performance for amusement-park companies than other metrics because it takes capital expenditures into account, said Hardiman and Michael Corty, a Chicago-based analyst at Morningstar Inc. in Chicago.
Room for Growth
Representatives at SeaWorld and Blackstone declined to comment. Blackstone today boosted the amount of shares it’s selling in the IPO to 16 million from 10 million, bringing the total on offer to 26 million.
While the top theme-park operators aren’t likely to achieve large-scale growth in the coming years, they all have room to improve profitability by charging higher admission prices, increasing customers’ spending inside the park, and cutting costs, the analysts said.
SeaWorld, famed for its killer whales named Shamu, had about $191.7 million in capital expenditures in the 12 months through December and free cash flow of $111.8 million, according to regulatory filings and data compiled by Bloomberg. The company operates 11 theme parks, including two under the Busch Gardens brand.
Much of SeaWorld’s capital spending went toward future attractions and animal-safety measures, according to the regulatory filing. The company described those costs as “elevated” for 2011 and 2012, and plans to reduce its level of expenditures to an average of about 10 percent of total revenue starting in 2014, excluding safety and infrastructure investments.
Six Flags, the Grand Prairie, Texas-based operator of 18 parks in the U.S., Mexico and Canada, had a market value of about $3.6 billion as of yesterday, or about 13 times last year’s free cash flow, filings show. That compares with 12 times for Cedar Fair (FUN:US), the Sandusky, Ohio-based operator of parks from Cedar Point in Ohio to Knott’s Berry Farm.
SeaWorld, which will have about $1.6 billion of net long- term debt after using IPO proceeds to repay borrowings, aims to have an enterprise value of about $4 billion at the midpoint of the offering range. Blackstone took control of SeaWorld in 2009 after agreeing to buy Anheuser-Busch InBev NV’s (ABI) amusement-park business, in a transaction then valued at as much as $2.7 billion.
Using another measure, SeaWorld could be considered cheaper than at least one of its peers. The company’s enterprise value at the midpoint of the IPO price range is about 10 times earnings before interest, taxes, depreciation and amortization of $393.8 million in the 12 months through December, data compiled by Bloomberg show. That compares with about 14 times for Six Flags and 9.8 times for Cedar Fair, the data show.
Blackstone, which owns all of SeaWorld (SEAS:US)’s equity, will hold about 68 percent following the sale. The offering terms would value Blackstone’s stake along with the cash received from the IPO at about $2 billion, twice the firm’s $1 billion equity investment in the 2009 leveraged buyout, according to data compiled by Bloomberg and a person with knowledge of the original transaction. SeaWorld had already paid Blackstone more than $600 million in dividends over the past two years.
Blackstone is taking SeaWorld public after the Standard & Poor’s 500 Index climbed to a record high this month and an index of stock volatility dropped to a six-year low in March. More than 40 percent of the U.S. IPOs this year have been by private-equity-backed companies, data compiled by Bloomberg show.
The largest was the offering by Taylor Morrison Home Corp., the home-builder majority owned by TPG Capital and Oaktree Capital Group LLC. That Scottsdale, Arizona-based company raised $722.9 million in its offering this month, including an overallotment option.
Private-equity-backed firms have filed for at least $3.5 billion in U.S. IPOs this year, according to data compiled by Bloomberg. The largest so far is that of HD Supply Holdings Inc., the construction supply business owned by private-equity firms including Carlyle Group LP, which filed for an offering using a $1 billion placeholder amount.
Other firms that used smaller placeholder amounts also may raise more than expected. Warburg Pincus LLC’s Bausch & Lomb Holdings Inc. filed for an IPO in March using a $100 million placeholder amount, and people familiar with the matter have said the eye-care maker could raise as much as $1.5 billion in a sale.
SeaWorld and Blackstone are offering the shares for $24 to $27 each. SeaWorld plans to list on the New York Stock Exchange under the symbol SEAS, and Goldman Sachs Group Inc. and JPMorgan Chase & Co. are leading the sale.
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