Blackstone has teamed with the Canada Pension Plan Investment Board and KIRKBI, an investment vehicle controlled by the founding family of the Lego brand, to buy Merlin Entertainments in a deal worth £5.9 billion (about $7.5 billion). The 455 pence per share offer is the third attempt from the consortium to take the Legoland owner private, having initially proposed a price of 425 pence. Shares in the British business (LON: MERL) closed up 13.7% on Friday.
If completed, the deal would represent one of the biggest European buyouts in the past decade, per PitchBook data. Aside from a dip in 2016, the amount of capital being spent on these transactions has been steadily increasing over the past decade, as last year saw a total deal value of €430 billion (about $489 billion), compared with just over €400 billion in 2017 and €301 billion the year before.
The transaction sees Merlin, which also owns Madame Tussauds and the London Eye, go full circle, as Blackstone previously owned the group in 2005, after acquiring it from Hermes Private Equity for £102.5 million. Some eight years later, it was listed on London's stock exchange at a reported 315 pence per share.
The deal is not Blackstone's first foray into the realms of attractions. The PE giant acquired SeaWorld Entertainment in 2009, then known as Busch Entertainment, which then went public in 2013 at a valuation of about $2.5 billion. Blackstone shipped a reported $1.7 billion of the company's stock over the ensuing years, before completely exiting in 2017 when the investor sold its 21% stake to China's Zhonghong Zhuoye for about $449 million—reportedly representing a nearly 3x return its initial equity investment.
It therefore makes sense that Blackstone would wish to move into this arena again. It also makes strategic sense for Merlin, which has been under pressure to find a buyer. In May, activist investor ValueAct Capital, which owns a 9.3% stake, urged shareholders to pursue a public-to-private sale in order to free up capital for maintenance on existing attractions and spending on new hotels.
The group's share price has suffered, experiencing a slump in the second half of 2017. Brexit has been blamed as one reason for the drop, due to its adverse effects on tourism, as well as terrorist attacks that have caused consumers to be wary of central locations. Perhaps more significant, the park operator faced problems in 2016, as it was fined £5 million for a crash the year before at Alton Towers that resulted in several major injuries and a decrease in visitor numbers.
However, it appears that the dip in visitors has recovered somewhat, as Merlin reported a 1.4% increase in volume to 67 million in 2018. The group's revenues also rose to around £1.7 billion from £1.6 billion in 2017, and it reported a pre-tax profit of £285 million.
Image courtesy of Merlin Entertainments
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