Let me guess..... They need to deleverage!

Dave & Buster's Inc. has filed for an initial public offering that could raise as much as $170 million. Dave & Buster's, which is owned by Wellspring Capital Management LLC., has been trying to sell the business for the last 12-months with not much luck. Interestingly, the timing on the transaction is uncertain.

The S1 suggests the company would use $75 million in net proceeds from the IPO to reduce debt. Including capitalized leases the Debt to EBITDA is close to 8x. Unfortunately, the nature of the Dave & Buster's concept requires significant reinvestment in the existing store base to maintain the appeal of the concept. Under this scenario, it's very difficult for a highly leveraged, capital-intensive company that is losing money to grow.
Judging from the S1, it looks like Wellspring has done a commendable job turning around a very troubled concept. Dave & Buster's was a disaster the first time it came public. In order to be able to execute the strategy laid out in the S1, the company needs a significant equity infusion. If the company does not deleverage the balance sheet, its growth is limited. This could be why the PE firms want out.

So, what is the value proposition for the new equity holders? We have a hard time seeing the upside. (1) Most of the proceeds of the IPO are going to the PE firm and not Dave & Buster's. I would love to see 100% of the proceeds go to deleveraging the balance sheet. (2) No concept is immune from the consumption recession. (3) Not many big box restaurant companies make good public companies.

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more