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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.