Published: Wednesday, October 6, 2021
Updated: Friday, October 8, 2021
ISOS Acquisition Corp: Why This SPAC May Be Different
Michael Kupinski, Director of Research, Noble Capital Markets, Inc.
Refer to end of report for Analyst Certification & Disclosures
The Deal. Bowlero, the largest bowling operator and the owner of the Professional Bowlers Association (PBA), will be brought public through a merger with publicly traded, Isos Acquisition Corp., (ISOS). The transaction values Bowlero at $2.6 billion enterprise value and is expected to close late October, early November 2021.
A growth oriented business that generates significant cash flow. Bowling has enjoyed a renaissance since 2010 with same store revenue growth and with high margins, save 2020 due to the pandemic. The company recently reported strong revenue growth that is above pre-Covid levels, which implies that the industry should enjoy continued favorable growth.
Attractive roll-up opportunity. Based on Bowlero’s data, the company controls only 8% of the bowling centers in the United States. There are roughly 3,700 bowling centers in the United States, which are largely mom and pop owned, offering attractive acquisition prospects.
Financial flexibility. Following the merger the company is expected to have over $250 million in cash and reasonable debt levels, estimated to be below 3 times net debt to EBITDA. Furthermore, Bowlero management anticipates high free cash flow conversion near 45%, which implies strong free cash flow generation of over $120 million.
Compelling stock valuation relative to peers. Near current levels, the ISOS shares trade at an implied 9.2 times Enterprise Value to Bowlero’s 2022 EBITDA, well below its peers. Should the shares trade in line with its peers, the target price would be $15. Management provides a strong case that the shares could trade higher, which is detailed later in this report.
Investment Summary
The planned merger between Bowlero and Special Acquisition Corporation, ISOS, appears to be different than many SPACs based on many attributes. Bowlero participates in one of the largest recreational sports in the United States, bowling. Roughly 67 million people bowl each year, far more than the 23 million that golf. Bowlero is an established, growth oriented company that generates sizable cash flow and free cash flow. It owns and operates bowling centers, which have organic growth prospects through multiple revenue streams including increased attendance, event rental, food and beverage, and amusement revenue. With the recent acquisition of Professional Bowlers Association (PBA), the company has significant growth opportunities from media rights and sponsorships. A hidden gem growth opportunity may come from gaming and international expansion, which would offer enhanced revenue and cash flow growth prospects.
There is an attractive roll-up strategy. Bowlero owns 321 bowling centers, only 8% of the roughly 3,700 centers in the United States, mostly owned by mom and pop businesses. It is unrivaled in size, owning 8 times as many bowling centers relative to its closest competitor with 44. Following the merger, the company will have a sizable war chest of $259 million it could use for growth capital to build additional centers, renovate and upgrade existing centers or to seek acquisitions. And, Bowlero and ISOS management appear uniquely capable of growing this business based on its operational successes, a seasoned and experienced management team, and sophisticated software and back office tools to scale its operations and run the centers efficiently.
First, the deal. Bowlero entered into a definitive agreement for a business combination to go public with Isos Acquisition Corporation (NYSE: ISOS.U). Isos is a special purpose acquisition company, controlling $450 million in PIPE funding secured from institutional investors and $255 million in its trust. Following the transaction, the combined company will continue as 'Bowlero', and its common stock and warrants will be listed on NYSE under the ticker "BOWL" and "BOWL WS", respectively.
The transaction is expected to close late October or early November 2021. Upon completion of the agreement, ISOS will merge with Bowlero resulting in newly issued convertible preferred and common stock to be received by ISOS current shareholders. In return, the $450 million in PIPE funding will be divided into $345 million in cash and $105 million of Atairos' existing equity in Bowlero, a current significant holder of the company. Additionally, the $255 million in the trust will contribute to fuel Bowlero's growth in the future. The convertible preferred stock will bear a 5.5% dividend and conversion price of $13.00 apiece, mandatorily converted into common stock after two years if the price reaches at least $16.90. The transaction will leave Bowlero with significant cash in hand to repurchase a portion of its existing shares, fund future operations, and continue its growth strategy. The implied enterprise value upon completion on a pro forma basis is worth $2.6 billion.
Stock valuation appears compelling. Near current levels, the ISOS shares (the publicly traded SPAC) trades at 10.9 times Enterprise Value to the company’s fiscal end July 30, 2022 EBITDA guide of $285 million. As described in the Stock Valuation section later in this report, the shares trade at a sizable discount to its peers, which currently trade on average at 14.0 times. Assuming that the ISOS shares traded in line with its peer set, the shares would trade at $15, based upon average EV to EBITDA multiples. The Enterprise Value calculation assumes $205.7 million fully diluted shares outstanding. Notably, management provides a compelling argument that the shares should trade at a premium to its peer set (described later in this report), which supports a higher price target.
Investment Highlights
- Bowling industry renaissance. The industry is growing. The $11.2 billion global industry in 2020, up from $4 billion in 2014, is enjoying a renaissance due to upgraded centers that may offer parties and event rental, enhanced food menu items, drinks and specialty cocktails, arcades, billiards, sports bars, and pro shops, in addition to bowling. The US market alone is estimated to be a sizable $3.8 billion in 2020 and is growing.
- Favorable industry attributes. Bowling centers are a cash based business, with low inventory, relatively low capital expenditures, and carry very high margins. Among the Free Standing Entertainment Complexes (FECs), bowling centers are among the very few with organic revenue growth, estimated to be roughly 3% per year.
- Significant cash flow business. Bowlero’s cash flow margins are a healthy 32% and free cash flow conversion rates are expected to be a strong 45% in 2022, significantly higher than other Family Entertainment Centers (FECs), theaters and casual dining businesses.
- Compelling roll-up strategy. Based on Bowlero’s data, the company controls only 8% of the bowling centers in the United States. While there are over 11,000 bowling alleys in the US, there are roughly 3,400 bowling centers, largely mom and pop owned, which offers attractive acquisition prospects.
- International growth prospects. The international bowling market is larger than the US market, with particular attractive growth in Asia, arising from increased disposable income, acceptance of western culture, and a growing young population seeking different forms of entertainment.
- Gaming opportunities. The innovative space in gaming and sports betting could offer enhanced revenue growth in the future. Recently the company has partnered with Skillz (NASDAQ: SKLZ), to connect with gamers across platforms and Bettorview, a sports betting marketing solution company. Approximately 20% of Bowlero’s bowling centers are located in legal online betting States. Furthermore, the increasing demand for PBA viewership can open additional doors for partnerships and sponsors on Bowlero’s media segment.
- Expanding Profitability Organically. Bowlero reported better than expected Adjusted EBITDA for its FY2021 of $105 million compared to its previous $92 million estimate. Management attributed the upside surprise to operational efficiencies and reduced capital expenditures. As a result of better efficiency, management guided an upward revision for its CY2022 Adjusted EBITDA forecast of 4% or $10 million to a total of $285 million.
- Compelling stock valuation relative to its peer set.
Investment Risks
- Government mandates. Bowlero has benefited from a secular shift in consumer spending toward experiential, in person gathering recreation through bowling. Government action to mitigate Covid, or other pandemics, that may limit gathering may have an adverse effect on attendance and may shift consumer interest in gathering in person for recreational sports.
- Shift in consumer taste. Bowling has benefited from in person social gathering. Shifts in consumer interest toward online gaming and/or other venues that offer online participation could adversely affect the growth of the bowling industry. While bowling is attractive to members of the entire family and all age groups, the industry is subject to competition from other recreational activities.
- Potential competition. While there is a high barrier to entry in building bowling centers, there is a risk that competitors may become more aggressive in building bowling centers within the company’s current markets that may adversely affect the attractive returns that the company achieves with its centers.
Industry Overview
The golden era of the bowling industry was in the late 1950s to the late 1970s, as automatic pinsetters were introduced and as the general population of the United States grew following World War II. The sport was considered a largely blue collar recreation as leagues were formed through associations and, typically, around business affiliations. Many of the bowling centers focused on league play due to the consistency of the revenue stream and as the league players tended to spend more money. During this period, league play accounted for over 70% of a bowling center revenue. The industry gained prominence in the 1960s through large sponsorships and tournaments, with large tournament prizes in the six figures.
Bowling lost its prominence in the 1980s through 2000s as the population shifted from working class to white collar. Leagues were more difficult to form as the population found less time to commit to league play.
Since 2010, the U.S. bowling industry rebounded as bowling centers upgraded facilities to attract a younger demographic (predominately 20 to 35 year olds). The upgrades included cosmetic enhancements and branding to the building, including large HD video walls, specialized lighting, and soft lounge seats. In addition, many bowling centers expanded and upgraded food menu items, offered specialty drinks and cocktails, arcades (as seen below), billiards, sports bars, and special events. As a result, bowling center revenue became more than just shoe rental and bowling. From 2012 to 2019, the industry enjoyed a renaissance with revenue growth at a compound annual growth rate of 3.3%, as illustrated in Figure #1 Bowling Industry Revenue below.
Pictured above is an example of the arcades that many bowling alleys installed.
The strong revenue growth is notable and reflects a significant increase in the number of people bowling. It is estimated that roughly 67 million people bowled at least once in the past year, a significant increase from 45 million in 2017. To put the 67 million bowlers in perspective, it places bowling as the number one recreational, participant sport in the U.S., ranking higher than Basketball (30.3 million), Baseball/Softball (29.3 million) and Golf (27 million). Importantly, bowling is not limited by physical ability or age, which may define some sports, such as tennis or golf.
In 2021, the bowling industry in the US is estimated to be $3.9 billion, a 1.5% increase from the prior year, reflecting a tepid recovery from the Covid impacted revenue decline in 2020. The revenue decline in 2020 reflected limited access to the bowling centers due to stay at home mandates and limited ability to gather. As a result, industry revenues in 2020 declined from an estimated $4.44 billion in 2019 to $3.83 billion. The rebound in revenues in 2021 reflect opening of economies and access to bowling centers. Bowling leagues, which require a large number of people to participate in a league, have been slower to recover to date, but have demonstrated improving sequential monthly trends. Notably, Bowlero has demonstrated a strong revenue rebound, described later in this report, as attendance of its centers has significantly improved.
Figure #1 Bowling Industry Revenue
Source: Statista
Aside from the impact of the Covid pandemic in 2020, bowling center revenue has been relatively consistent and predictable, with attractive organic annual revenue growth in the 3% to 5% range. Figure #2 Revenue Per Bowling Center illustrates that revenue per center increased between 2010 and 2019 at a Compound Annual Growth Rate of 4.7%. In addition, the industry has significant operating margins, estimated to be between 25% to 35%.
Figure #2 Revenue Per Bowling Center
Source: Kentley Insights as of January 2021
Company Overview
The first Bowlero center was founded as Bowlmor Lanes in Greenwich Village, NYC in 1938. Tom Shannon, founder and current CEO of Bowlero, purchased Bowlmor Lanes in 1997. Mr. Shannon envisioned a different experience for the customers and did away with league play. The bowling center was refurbished with artistic design, added the fine dining menu items, arcade and entertainment games and an expanded bar with specialty cocktails. The company no longer accepted league play to cultivated an upscale, younger client base. The move significantly increased revenues and profitability.
Building upon the success of Bowlmor, the company sought acquisition fueled growth and to prove the concept in other parts of the country. In 2013, Bowlmor Lanes agreed to acquire AMF Bowling Worldwide. As a result, Bowlmor became one of the largest bowling center operators with over 270 operating centers at the time. As Figure #3 Company Timeline highlights, just a year later, Bowlmor purchased Brunswick Bowling. Bowlmor Lanes officially rebranded itself to become Bowlero Corp in 2018. Moreover, the company purchased the PBA in 2019, in efforts to diversify its revenue stream into the media and gaming industries.
While the company initially did not accepted league play at some of its centers, it has developed a more nuanced strategy depending upon the type of center and where it is located. Currently, Bowlero operates 321 bowling centers and serves over 26 million customers every year in North America. The company will debut in the public markets following the SPAC merger in late October or early November.
Figure #3 Company Timeline
Source: Company presentation
Bowlero has two operating segments, 1) Leisure, which includes recreational, league, or event bowling, and 2) Media, which includes its ownership of the Professional Bowlers Association (PBA), its digital and linear television media rights, esports, gaming, programming and, sportsbetting.
Leisure
Its Leisure segment is further segmented into revenue streams including Bowling and Shoe Rental, Food & Beverage, and Other. Bowling and Shoe Rental account for roughly 54% of total revenues, followed by Food & Beverage at 32%. Labor costs are the vast majority of expenses at 69% of total expenses. The segments contribution margins are a healthy 32% as Figure #4 Leisure Segment illustrates. The segment is expected to benefit from strong revenue growth from the depths of the pandemic as consumers seek in person recreation. As illustrated below, the company managed through the crisis surprisingly well in spite of government stay at home mandates and bowling center closures. The company decreased expenses, $33 million of permanent annualized savings, and $145 million in temporary savings, and reduced capital expenditures by $58 million. The segment data is illustrative and do not fully reflect the recent increased management guide in total company revenues and EBITDA. Management increased full year 2022 EBITDA guidance by $10 million and it is likely that the full $10 million increase is in the Leisure segment. As such, Leisure EBITDA should be adjusted upward accordingly.
Figure #4 Leisure Segment
Source: Company investor presentation.
Revenue growth is also expected to be fueled by the prospect of upgrading existing bowling facilities to the new state of the art models or to build new centers. The company has had an enviable track record for revenue and EBITDA growth through facility upgrades and new builds as the following Figure #5 Attractive Returns illustrates.
Figure #5 Attractive Returns
Source: Company investor presentation
Media
The company’s acquisition of the Professional Bowlers Association (PBA) in September 2019 was is the linchpin to this business segment. With the acquisition, the company received the media rights with Fox Sports for televised bowling tournaments. In addition, the company has a relationship with Fox Bet sportsbook and is in discussions with additional sports betting partners. Finally, the company has media projects in programming, esports, gaming and in-center gaming experiences. Strike! is the company’s partnership with Skillz for a branded esports game. PBA Bowling Challenge is a 3D bowling mobile game available on iOS and Android devices. And, PBA Pro Bowling is the officially licensed PBA’s console game available on PlayStation, Xbox, Nintendo Switch an Steam. Finally, PBA Global Rumble is an international bowling tournament which offers attractive competition for a prize fund of $50,000.
Management plans to grow this division through linear and digital media rights, both domestically and internationally. In addition, it plans to grow the number of PBA sponsors and launch new original programming. Plus, its gaming and esports opportunities appear to offer a flywheel revenue opportunity to fuel expansion into global markets and to broaden its audience reach. As Figure #6 Media Segment illustrates, the division is relatively small, but offers dynamic growth opportunities.
Figure #6 Media Segment
Given the significant scale of operating over 300 bowling centers, the company in 2021 launched a software platform to optimize its operations, called Quantitative Management Solutions, or QMS. This Software as a Service (SaaS) platform was developed in-house to utilize its data to provide areas of opportunity to drive performance and efficiencies. While the software was developed for the company’s use, there appears to be an opportunity to provide the software to other businesses. As Figure #7 QMS Addressable Market illustrates, the company believes that there are potentially 10 million client businesses that can utilize QMS.
Figure #7 QMS Addressable Market
Source: Company Investor Presentation
As demonstrated, there are multiple revenue streams to drive the company’s growth. Some of the key operational metrics to drive revenue growth include the following
- Take advantage of a unique portfolio of assets in the most popular markets in the US.
- Invest in branding and exceptional customer experience.
- Achieve optimal operating efficiency through technological advancements.
- Build on a proven track of performance gains.
- Explore opportunities in highly profitable industries like gaming and media.
- High Free Cash Flow generation to reinvest across the projects.
- Global expansion through a combination of acquisitions and licensing
Acquisition fueled growth opportunity
While its businesses offer attractive organic growth opportunities, the company is presented with a roll-up opportunity to continue its acquisition fueled growth. As Figure #8 Market Landscape illustrates, the company is by far the leader in its space owning roughly 8% of the total bowling centers in the United States. Notably, there are a sizable pool of potential acquisition targets, largely controlled by mom and pop businesses that may not have updated or converted the centers. Such targets offer the opportunity for enhanced revenue and cash flow growth.
Figure #8 Market Landscape
Source: Company investor presentation
About Isos. Isos completed a $225 million IPO in March 2021, when it was listed on the NYSE exchange. Isos is a blank check company formed to effect a merger, share exchange, share purchase, or similar business combination with one or more businesses. On July 1st, 2021, the company agreed to combine with Bowlero Corp contributing roughly $309 million in cash and $95 million of the proceeds upon preferred stock issuance, and $211 million cash to balance sheet and debt/preferred paydown, all in exchange for a 14.5% direct interest in the firm. PIPE investors will retain roughly 14.3% of the resulting company in exchange for the contributions. The cash will be used to repurchase common stock and to fund future growth opportunities.
Financial Overview
As Figure #9 Balance Sheet illustrates, as of June 27, 2021, the Bowlero had $187.1 million in cash and $885 million in debt. Upon the closing of the merger with ISOS, the company is expected to receive an influx of cash of $211 million, of which $139 million will be used for preferred equity pay down and the remaining $72 million to add to cash and/or to pare down existing debt. There will be an issuance of roughly $200 million in convertible preferred.
As such, proforma net debt and preferred is estimated to be $1.085 billion, with cash estimated to be roughly $259 million, which may be used to fuel its growth plans. These estimates are based on the company’s presentation, but are updated for the June 27th financial numbers. Based on the company’s proforma fiscal 2022 cash flow of $285 million, debt levels appear to be a reasonable 3.8 times estimated cash flow. Given the company’s anticipate large cash position of $259 million, net debt is anticipated to be $826 million, or a modest 2.9 times estimated 2022 cash flow.
Figure #9 Balance Sheet
Notably, the company is expected to generate a significant amount of free cash flow. As Figure #10 Cash Flow illustrates, the company’s EBITDA margins and free cash flow conversion is among the top of its peers including Theaters, Family Entertainment Centers (FECs), and Casual Dining restaurants. Free cash flow conversion rates that were achieved in calendar year 2019 of roughly 68%.
Figure #10 Cash Flow
Source: Investor presentation
Management provided guidance that conversion rates in fiscal 2022 will be lower given that it expects to increase cap ex to enhance revenue at some of its existing facilities through upgrades. As Figure #11 Free Cash Flow highlights, free cash flow conversion is expected to be roughly 45% in fiscal 2022. As such, the company would be expected to generate roughly $128 million in free cash flow, still meaningful to be used for debt reduction, to invest in revenue growth and to seek acquisition fueled growth.
Figure #11 Free Cash Flow
Source: Company Investor Presentation
Recent Results and Outlook
On September 21, the company reported fiscal fourth quarter end June 30, 2021 results that indicated that the company is on a fast track toward recovery. In fact, fiscal Q4 revenues increased to $155 million, which was above the pre pandemic levels of fiscal Q4 2019 at $151 million. Given management’s permanent cost reductions during the pandemic, gross profit was well above 2019 levels as well, $106 million versus $96 million as Figure #12 Fiscal Q4 Results illustrate. Notably, the results beat the company’s revenue guide ($395 million versus $386 million), with all product lines exceeding expectations. Given the earlier cost cuts, the company significantly improved EBITDA, up 82% above the comparable pre-pandemic Covid quarter. Adjusted EBITDA was better than management guidance as well, ($105 million versus $92 million).
Figure #12 Fiscal Q4 Results
Given the favorable operating momentum, the company raised fiscal 2022 revenue and EBITDA guidance. The increased guidance reflects the fact that the most recent results, while exceeding pre-pandemic levels, still do not reflect a full recovery in its event and league businesses, which continue to recover. In addition, the company is expected to benefit from its previous operating efficiencies. Figure #13 Revenue Outlook reflects the updated management guidance.
Figure #13 Revenue Guidance
Source: ISOS’ Investor Presentation
The following Figure #14 Adjusted EBITDA Outlook illustrates management’s expectations of expanding EBITDA margins from a combination of cost-saving initiatives and revenue growth. Management expects to reach 32% EBITDA margins in calendar year 2022. The company anticipates robust revenue growth of 8.4% during the period contemplated between FY’18 and FY’23. Additionally, cost-saving initiatives and sales expansion should contribute to a strong 11.7% EBITDA growth during the same period. Figure #15 Increased EBITDA Guidance, highlights the anticipated increase in cash flow from various sources.
Figure #14 Adjusted EBITDA Outlook
Source: Company Investor Presentation
Figure #15 Increased EBITDA Guidance
Source: ISOS’ Investor Presentation
What is important in the revenue and EBITDA guidance is that which is not in the guidance and provides significant upside to the outlook. Importantly, the company has not factored in any benefit from the prospect of an acceleration in center conversions, new builds or acquisitions. Certainly, following the merger, the company will have significant financial flexibility to do that. Furthermore, the guidance does not include the prospect to monetize its vast real estate portfolio, or to seek domestic or international licensing for its bowling centers. Finally, the guidance does not include in-center gaming expansion and development of sports betting, at-home gaming options, and international gaming tournaments, or additional clients for its QMS platform.
Management Overview
George Barrios: Mr. Barrios is a renowned c-suite executive with broad experience in the entertainment sector currently serving as Co-Chief Executive Officer for Isos. He previously served as Co-President and Board Member of WWE. Mr. Barrios joined WWE in 2008 filling in as its Chief Strategy and Financial Officer. Notably, Institutional Investor ranked Mr. Barrios among the Top 3 CFOs in the Media Sector. Prior to that, he held various leadership positions at media giants like the New York Times, Praxair, Time Warner, and HBO. He is educated at the University of Connecticut School of Business where he earned his MBA.
Michelle Wilson: Ms. Wilson currently serves as Co-Chief Executive Officer for Isos. She is a distinguished executive in the sports and entertainment industries. In 2018, Forbes Magazine named Ms. Wilson one of the 10 Most Powerful Women in Sports. Prior to Isos, she filled in as Co-President and Board Member of WWE, she joined the company in 2009 holding the title of Chief Revenue and Marketing Officer. Previously she worked as Chief Marketing Officer of the United States Tennis Association, she also held brand management positions for the NBA and Nabisco. She earned her MBA from Harvard Business School.
Tom Shannon: Mr. Shannon is the CEO and Chairman of Bowlero Corporation. He founded the company back in 1997 when he acquired Bowlmor Lanes in New York City. The known success story behind his upscale bowling model at Bowlmor was set as a referent for the company’s business strategy. Mr. Shannon received his MBA from the University of Virginia Darden School of Business and his undergraduate degree from American University.
Brett Parker: Mr. Parker serves as Chief Financial Officer and Vice Chairman of Bowlero Corporation. Before Bowlero, he held the title of Chief Financial Officer and President of Bowlmor Lanes from 2001 to 2013. He was a key piece in Bowlmor and AMF Bowling Worldwide merger, resulting in Bowlero Corp. Mr. Parker also held positions at SL New Media, Credit Suisse, and Citi Group. He earned his Bachelor’s degree at Cornell University.
Stock Overview and Valuation:
Figure #16 Pro-forma Ownership illustrates the stock ownership of the merged company. The $255 million provided by ISOS in the SPAC trust will effectively translate into a 14.5% ownership stake in BOWL. Moreover, the $250 million from PIPE investors will effectively purchase a 14.3% stake in the newly formed company. Lastly, ISOS sponsors will own 2.3%, while BOWL's management will be granted an extra 0.8% in stock bonuses. The shares will be listed on the NYSE exchange under the ticker "BOWL". There are estimated to be 175 million shares outstanding following the merger with ISOS, which assumes no conversion of convertible preferred equity.
Figure #16 Pro-forma Ownership
Source: ISOS’ Investor Presentation
There are estimated to be 230 million fully diluted shares outstanding based on conversion of the convertible preferred. Figure #17 Fully Diluted Shares outlines the shares outstanding at various conversion prices.
Figure #17 Fully Diluted Shares
The following Figure #18 Peer Comparables highlights the company’s industry peers. The peer group consists of four different sectors that the company competes: Experiential, Amusement, Dining & Leisure, and Live Events/Sports. As illustrated, the Bowlero shares trade at a discount when compared to its competitors. The valuations are based on management’s guidance of $285 million in EBITDA and proforma expectations of cash and debt outlined earlier in this report. Near current levels, the ISOS shares trade at an implied 9.2 times EV to 2022 EBITDA, or near a 60% discount to its industry averages. If the shares were to trade in line with its peers, the shares would trade at $14.50 or nearly 45% above current levels.
Figure #18 Peer Comparables
Source: Noble Research
The company provided reasons that the shares should even trade at a premium to its peer set. As Figure #19 Experiential Peer Set Metrics illustrates, the company is expected to grow revenues, cash flow and have better margins than this peer group. Bowlero’s revenue growth is expected to increase at a Compound Annual Growth Rate (CAGR) from 2019 to 2022 at 7.7%, above the average 5.1% for its peer set. Furthermore, the company’s EBITDA growth is greater (11.7% versus 10.4%) and its margins are higher (32.1% versus 19.4%).
Figure #19 Experiential Peer Set Metrics
Notably, the Experiential peer group trades at higher multiples, with EV to 2022 EBITDA at roughly 17.2 times. This would imply a price target for the Bowlero shares near $18.50. This price target would assume an enterprise valuation calculation that would use 219.3 million shares outstanding as depicted in Figure #17 Fully Diluted Shares. The only sector comp that would not offer as much upside would be the Amusement comparables, with the average Amusement company trading at a little over 10 times Enterprise Value to 2022 EBITDA.
As Figure #20 Amusement Comparable illustrates, Amusement companies are well below the expected Bowlero revenue and EBITDA growth rates. Based on estimates, Bowler is expected to grow revenues at 7.7% CAGR versus the Amusement industry average of 1.4%. Bowlero’s EBITDA CAGR is 11.7% versus the Amusement industry average of just 4.0%. As such, it would appear that Bowlero would be deserving of a higher multiple.
Figure #20 Amusement Comparable
Based on the peer group set, it would seem to be fair to put a target EV to EBITDA multiple for the Bowlero shares in a range between 14 (the average for the entire group) to 17 (the blended average without the Amusement group). The multiple would imply a price target for the Bowlero shares between $15 and $18.
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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE
Director of Research. Senior Equity Analyst specializing in Media & Entertainment. 34 years of experience as an analyst. Member of the National Cable Television Society Foundation and the National Association of Broadcasters. BS in Management Science, Computer Science Certificate and MBA specializing in Finance from St. Louis University.
Named WSJ ‘Best on the Street’ Analyst six times.
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| NOBLE RATINGS DEFINITIONS |
% OF SECURITIES COVERED |
% IB CLIENTS |
| Outperform: potential return is >15% above the current price |
84% |
30% |
| Market Perform: potential return is -15% to 15% of the current price |
3% |
1% |
| Underperform: potential return is >15% below the current price |
0% |
0% |
NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same.
Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.
Noble Capital Markets, Inc.
150 East Palmetto Park Rd., Suite 110
Boca Raton, FL 33432
561-994-1191
Noble Capital Markets, Inc. is a FINRA (Financial Industry Regulatory Authority) registered broker/dealer.
Noble Capital Markets, Inc. is an MSRB (Municipal Securities Rulemaking Board) registered broker/dealer.
Member – SIPC (Securities Investor Protection Corporation)
Report ID: 24038
