CEC Entertainment, the owner of Chuck E. Cheese that was set to go public more than four years ago before the pandemic sent it into bankruptcy, has apparently recovered enough to rethink the M&A markets again.
Reuters last week reported that the Irving, Tex.-based company is working with Goldman Sachs on an auction process. The news service speculated that the sale process could attract private equity firms or even “peers such as Dave & Busters Entertainment.”
A representative for Chuck E. Cheese would not comment on the report.
Reuters said that CEC expects to generate $195 million in earnings before interest, taxes, depreciation and amortization, or EBITDA, this year. A valuation of about 7x EBITDA would value the company at $1.4 billion, for instance.
Regardless, the sale process is indicative of two things: The M&A market for restaurants is improving and eatertainment is a hot commodity right now.
The market for mergers and acquisitions froze starting in late 2021 and has only thawed more recently, amid rising inflation, thinning margins and higher interest rates. Now, labor costs and profit margins are improving and the U.S. Federal Reserve appears set to at least stop raising rates, or perhaps lowering them.
That has buyers potentially more confident in making a deal.
In addition, eatertainment is considered a hot commodity in some areas of the market, with investors flocking to concepts that combine dining and games.
Chuck E. Cheese had planned to go public through a merger with a public shell company in 2019, known as a SPAC or a special purpose acquisition company. That deal collapsed a few months before the pandemic, which hammered sales at the food-and-games chain.
CEC filed for bankruptcy in 2020 amid lawsuits from landlords and weak sales. The company cut debt by some $700 million and emerged from bankruptcy in 2021. It has spent the past three years working to improve its operations. It added technology and started licensing its name to waterparks. It also started developing Peter Piper as a fast-casual concept out of its core markets.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.