IPO Report: Dave & Buster’s Entertainment (PLAY)

Dave & Buster's Entertainment (PLAY) scheduled a $100 million IPO on Nasdaq with a market capitalization of $664 million at a price range midpoint of $17 for Friday, Oct. 10, 2014. It is headquartered in Dallas, TX,

Seven other companies are scheduled for the week of Oct. 6, 2014.  The full IPO calendar is available at IPOpremium.

Manager, Co-managers:Jefferies, Piper Jaffray, William Blair, Raymond James, Stifel 
Joint-managers: LOYAL3 Securities

Dave & Buster's IPO Overview

PLAY is a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families.

SEC filings

Valuation

Glossary

Conclusion

Neutral, 16 P/E on adj earnings

Overall market for PLAY in a downtrend

Relatively small new store potential

Cash provided from operations -84%

Rev +17%, 5.6% adj profit margin

Adj EBITDA +19%

Business

PLAY is a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families.

As of September 26, 2014, PLAY owned and operated 70 stores in 27 states and Canada

Declining market growth

Based on the KNAPP-TRACK index, an index tracking year-over-year changes in comparable store sales in the casual dining restaurant industry, the overall casual dining restaurant industry’s comparable store sales growth was -.9%, -1.5%, 0.2% and 1.7% for the twenty-six weeks ended August 3, 2014 and fiscal 2013, 2012 and 2011, respectively.

As such, PLAY outperformed the KNAPP-TRACK index by approximately 610, 240, 270 and 40 basis points in the twenty-six weeks ended August 3, 2014 and fiscal 2013, 2012 and 2011, respectively.

Growth plan

Third-party research suggests a total store potential in the United States and Canada in excess of 200 stores (including PLAT's 70 existing stores), approximately three times the current store base.

PLAY believes its new store opportunity is split fairly evenly between large format and small format stores.

PLAY plans to open seven to eight stores in fiscal 2014, including five stores already opened, which are  will be financed with available cash and operating cash flows.

Thereafter, PLAY believes it can continue opening new stores at an annual rate of approximately 10% of the then existing store base

The PLAY concept

The core of PLAY’s concept is to offer its customers the opportunity to “Eat Drink Play and Watch” all in one location. Eat and Drink are offered through a full menu of “Fun American New Gourmet” entrées and appetizers and a full selection of non-alcoholic and alcoholic beverages.

PLAY’s Play and Watch offerings provide an extensive assortment of entertainment attractions centered around playing games and watching live sports and other televised events. It customers are a balanced mix of men and women, primarily between the ages of 21 and 39, and PLAY believes it also serves as an attractive venue for families with children and teenagers.

PLAY believes it appeals to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting.

As of September 26, 2014, PLAY owned and operated 70 stores in 27 states and Canada.

For the twelve months ended August 3, 2014, PLAY generated total revenues of $689.9 million, Adjusted EBITDA of $149.0 million (representing an Adjusted EBITDA margin of 21.6%) and a net loss of $7.7 million.

For the twenty-six weeks ended August 3, 2014 and August 4, 2013, PLAY generated total revenues of $376.2 million and $321.9 million, respectively, Adjusted EBITDA of $89.1 million and $74.8 million, respectively, and net income (loss) of $(2.4) million and $7.5 million, respectively.

For fiscal 2013, PLAY generated total revenues of $635.6 million, Adjusted EBITDA of $134.8 million (representing an Adjusted EBITDA margin of 21.2%) and net income of $2.2 million. For fiscal 2012 and fiscal 2011, PLAY generated total revenues of $608.1 million and $541.5 million, respectively, Adjusted EBITDA of $120.5 million and $98.4 million, respectively, and net income (loss) of $8.8 million and $(7.0) million, respectively.

From fiscal 2011 to fiscal 2013, total revenues and Adjusted EBITDA grew at a CAGR of 8.3% and 17.1%, respectively. PLAY generated comparable store sales increases of 5.2%, 1.0%, 3.0% and 2.2% in the twenty-six weeks ended August 3, 2014 and fiscal 2013, 2012 and 2011, respectively.

Intellectual property

PLAY has registered the trademarks Dave & Buster’s®, Power Card®, Eat & Play Combo® and Eat Drink Play®, and have registered or applied to register certain additional trademarks with the United States Patent and Trademark Office and in various foreign countries.

Competition

PLAY competes for customers’ discretionary entertainment dollars with theme parks, as well as providers of out-of-home entertainment, including localized attraction facilities such as movie theaters, sporting events, bowling alleys and night clubs and restaurants. PLAY also faces competition from local establishments that offer entertainment experiences similar to ours and restaurants that are highly competitive with respect to price, quality of service, location, ambience and type and quality of food.

Some of these establishments may exist in multiple locations, and PLAY may also face competition on a national basis in the future from other concepts that are similar to ours.

PLAY also faces competition from increasingly sophisticated home-based forms of entertainment, such as internet and video gaming and home movie delivery.

5% shareholders pre-IPO

Oak Hill Capital Partners III, L.P.     92.3%

Dividend Policy

No dividends are planned.

Use of proceeds

PLAY intends to use the $91 million in proceeds from its IPO as follows:

to repay approximately $91.0 million principal amount of term loan debt outstanding under the new senior secured credit facility. PLAY estimates paying $0.2 million accrued interest from existing cash on hand related to the repayment of a portion of its term loan previously discussed.