Six Flags Announces Strategic Partnership With NFL Legend Travis Kelce
Six Flags Entertainment Corporation today announced a new strategic partnership with NFL legend and three-time Super Bowl champion Travis Kelce, under which he will serve as a brand ambassador for North America’s largest regional amusement park operator.
You should care. Travis Kelce joined the activist investors known as JANA Partners, who is now pressuring Six Flags to replace the board chair and explore a sale of the chain.
If such a sale happens (this is independent of Enchanted Parks), it will most likely be acquired by a private equity firm.
Given how many businesses PE firms have bankrupted and stripped apart, along with the impact of PE ownership on United Parks (SeaWorld, Busch Gardens), this could lead to a very dark path.
Right now, United Parks is facing the loss of Sesame Street rights due to misuse of the IP and failure to pay royalties. It doesn't matter to Hill Path Capital, since the PE firm doesn't suffer any of the losses the parks endure.
Oh, and their decline in revenue this year? They spent an even greater amount of money on stock buybacks! That giga in BGT is effectively out of the question now.
If PE takes over Six Flags, expect more of the same, including less spent on maintenance, and possibly even more debt than they have now.
Unofficial Rule of Ride Removals
You must announce removals in advance so people can get their last rides in, unless a major incident or malfunction prevents the ride from doing so.
This applies to roller coasters, flat rides, water rides, and so on.
Exceptions to this rule include upcharge attractions, waterpark rides, and rides that are effectively redundant within a park.
^I'll second that. I was at Sea World Orland in early February, and was truly disappointed in the "business decisions" that were made by the park. It will take some serious convincing to get me to spend another penny at that park. I haven't been to the Busch Gardens parks since the transition to the new owner, but if they are doing similar practices, that's really heart-breaking. Those are (or at least were) really great parks.
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GoBucks89:
A New Point of View:
It doesn't matter to Hill Path Capital, since the PE firm doesn't suffer any of the losses the parks endure.
What do you mean by this?
This video provides an example of private equity impact.
While United Parks didn't go the leveraged buyout route, the effects of PE ownership are similar.
Three known PE tactics:
Leveraged Buyout (LBO): a buyout that is made by borrowing, putting a huge debt load on the company while the PE firm has a minimal amount of debt on itself.
Sale Leasebacks: the land and buildings the company owned are sold off, so now the company pays rent just to stay in the very places they used to own.
Dividend recap: when the PE firm borrows more money at the expense of the company to pay itself and shareholders.
Because of this, the company is burdened with a huge debt load, losing its ability to adapt to change, while the PE firm profits regardless of what happens to the company.
Eventually, the company goes bankrupt. If it survives, it often ends up with other PE firms, and then quickly goes bankrupt again (a "Chapter 22" case) and usually goes out of business entirely, at least when it comes to retail.
There's a term for this: the Bust Out.
This is why I am concerned by Kelce and JANA. In the near future, expect quality to decline and possibly the end of record breaking roller coasters if PE takes over Six Flags.
Unofficial Rule of Ride Removals
You must announce removals in advance so people can get their last rides in, unless a major incident or malfunction prevents the ride from doing so.
This applies to roller coasters, flat rides, water rides, and so on.
Exceptions to this rule include upcharge attractions, waterpark rides, and rides that are effectively redundant within a park.
You still haven't answered my question. And what the More Perfect Union video lacks in understanding how PE works it tries to make up for it with confidence. But for people looking to learn, the confidence doesn't lead to understanding.
Lets say you run a PE fund. You invest some money of your own in the fund (investors like to see that) and get commitments from other LP investors. You go out and find a company to buy. You convince lenders to lend some of the purchase price to the targets (good luck finding lenders looking to lend 90% of the cost of the acquisition as those are an extremely rare deal--50-70% debt is more common and recently closer to the lower end of that range). The rest of the purchase price will be funded with your equity (though you may get the sellers to roll some of their equity into your company or to agree to get paid part of the purchase price on a deferred basis). Point of leverage is to allow you to increase your returns by being able to make more investments. A $500 million PE fund can make 5 investments (assuming the world consists of only $100 million companies). But if it can borrow 50% of the purchase price of its investments, it can now make 10 investments. Assuming your return covers the cost of borrowing on the debt (and it can be a little less given the return is on the entire investment but the debt is only a portion of it), you make some money (for you and your investors).
Looking at the LBO, your equity is behind the lender's debt. So, when you exit the investment (which is the ultimate goal for almost all private equity funds), you need to realize sufficient sales proceeds to pay off all of the debt before you see any of your investment back (much less a return on that investment). If the investment loses money, how do you realize sufficient sales proceeds to make a profit for your investors? How does your PE fund profit regardless of what happens to the company/your investments? How do equity holders come out of deals with companies that file bankruptcy petitions?
If you want to ban PE LBO's (btw, Cedar Fair did one on its own without PE and its not like without PE, leverage/debt doesn't exist, would you require PE funds to borrow the money themselves to be combined with their equity to buy companies/make investments? If that happens, lenders providing such loans to PE funds will put restrictions on what the companies/investments can do (lenders understand that the portfolio companies/investments will generate the cash to repay the PE loans and thus lenders will want to protect that cash flow from being diverted). Borrowing money (whether for an LBO or otherwise) will result in lenders putting restrictions on what the company can do (restrictions will be fewer for investment grade companies and very restrictive for companies with asset based loans). Or maybe you think the world would be better without any debt/leverage at all?
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