Blackstone Group announced in December that its SeaWorld amusement park business was looking to raise $100 million in an IPO. On April 8 it filed a registration statement amendment that ups the amount to as much as $500 million. Should you buy its shares once they're priced? I'll have a look. 

Beer Barons 
The New York-based private equity firm acquired SeaWorld for approximately $2.5 billion in December 2009. Anheuser-Busch InBev (NYSE:BUD) no longer found the amusement park business an essential piece of its empire. With financing from Goldman Sachs (NYSE:GS), Blackstone invested $975 million cash in the deal with the rest paid for with debt issued by SeaWorld. At the time of the deal, Blackstone senior managing director Michael Chae said this about the acquisition: "Blackstone sees tremendous opportunity for investing in leading businesses within the media and entertainment industries, where we have significant expertise." SeaWorld joined a number of amusement-related businesses under Merlin Entertainments Group, which includes Legoland and Madame Tussaud's.

SEE: Analyzing An Acquisition Announcement

In the three years since Blackstone acquired SeaWorld, it has grown revenues from $1.2 billion in 2010 to $1.4 billion this past year. At the same time, it grew adjusted EBITDA from $343.3 million in 2010 to $415.2 million in 2012. Its peers - Six Flags (NYSE:SIX) and Cedar Fair L.P. (NYSE:FUN) - currently have enterprise values that are 12.8 and 9.6 times EBITDA respectively. In terms of EBITDA margins, its two competitors average 34.7%. SeaWorld's EBITDA margin has been 29% in each of the last two years; although they are consistent, they trail its two competitors by a wide margin. 

All three companies carry significant debt. SeaWorld's net debt position is $1.77 billion, with Six Flags carrying $781 million and Cedar Fair with $1.48 billion. These are not cheap businesses to operate. They require significant annual capital expenditures and are seriously dependent on weather and a healthy economy in order to grow. The real value is in their appreciating real estate. In that respect, SeaWorld doesn't come close to its peers with just 2,070 acres compared to Six Flags with 4,858 and Cedar Fair at 5,029. Considering this point alone, I think you have to knock down the price you are willing to pay for its stock.

Cedar Fair has less debt and better margins than SeaWorld so I wouldn't apply an enterprise value of more than eight times EBITDA or $3.32 billion. Based on the figure of $500 million it looks to raise, I would guess Blackstone Group will sell as much as one-third of the company when it finally prices its shares. I estimate an IPO price between $12 and $14 per share. Anything higher and they'll maintain a larger ownership position. 

In 2011 and 2012, Blackstone paid to itself and its partners $610 million in dividends. One of the uses of the IPO proceeds will be to pay $47 million to Blackstone Management Partners LLC and its affiliates for terminating a 2009 advisory agreement. This means Blackstone and its partners will actually have used just $318 million of its own money to buy SeaWorld. 

SEE: IPO Basics

Bottom Line
Blackstone has done well with SeaWorld. Investors buying into the IPO won't do anywhere near as well, especially if it receives a market cap valuation greater than $1.5 billion. With almost 50% of the interest expense on its debt variable in nature, any upswing in interest rates will have serious consequences. Of the three companies, SeaWorld is the least attractive in my opinion. Blackstone's getting out at just the right time.

At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.

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