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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.

"Where Is The Money Going To Come From?!?"

That was the question posed by US Government at 1:45 PM EST. If you are not watching today's testimony by Hank Paulson, you should. Hank is being forced to face the accountability card, and he doesn't like it.
KM

CSX: The Other Side of the "Concentrated Activism" Trade

James Mackintosh in London broke a story this morning about TCI's latest returns.

Per his article, "TCI, which manages more than $10bn and made its name taking on Deutsche B

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.63%

Did You Get BIll Ackman's Memo?

Pershing Square now issues slide presentations pushing their own book. Today's is sitting on my desk, titled "How To Save Fannie and Freddie." Evidently, today Ackman is playing Robin Hood for us hard working commoners. How nice of him.

Exhibit 1: there is a slide titled "How Might A Restructuring Work", and the first bullet point is "common and preferred equity extinguished".

Research Edge Question 1: Is this a more sophisticated way of suggesting Ackman getting paid on his short positions?

I won't go into other exhibits or questions, but we continue to have our "HedgEyes" on Bill Ackman.
KM

We Got Our 31 Level In the VIX - Capitulation Is Finally Here...

In tandem, the S&P 500 was marked at an intraday low of 1201 alongside a VIX 31 reading, just after 10am EST. That was likely a short term trading bottom for US stocks.

Bernanke admitting we have US stagflation is an important start in getting proactive on raising rates and the value of the US Dollar.

KM

Fannie Mae Trading Down another -26% Today - Thanks Hank

Apparently the vote on Hank Paulson's solution to this US Banking system mess is on the tape.
KM

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