I wish I were anywhere else but here. If I close my eyes, I'm at Cedar Point, ratcheting to the top of the Millennium Force roller coaster, with Lake Erie to my left and adventure down below. And then reality comes crashing in.
See, I'm an amusement park enthusiast and a Cedar Fair
Cedar Fair's woes keep clack-clack-clacking higher, like the stomach-churning first hill on a roller coaster. Its last few acquisitions have been difficult. Attendance on a same-park basis has been flattish since 2002. And the company's highly leveraged state is posing a financial challenge today, while threatening the existence of the company's overly generous distributions tomorrow.
Throw that all together, and the results aren't pretty. When the company takes three weeks to shoot down a published buyout rumor, leaving cynical investors like me to wonder whether it was quietly shopping itself in a buyer's market, it's not very encouraging.
It wouldn't have been much of a bidding war. After putting on some serious weight to finance its acquisition of the Paramount Parks from CBS
Cedar Fair generated $310 million in EBITDA last year. That means any suitor would pay nearly 11 times EBITDA for the company without a buyout premium -- a price on the high end of recent industry deals:
- Cedar Fair paid 9.1 times EBITDA for the Paramount Parks chain last year.
(NYSE:SIX)sold a few of its smaller parks in a $312 million transaction earlier this year, valuing the properties at 10.4 times last year's EBITDA.
Cedar Fair is hoping to clock in with $320 million to $340 million in EBITDA this year, but that still translates into an expensive deal. The other industry acquisitions were purchases of struggling parks working on depressed operating margins. Cedar Fair doesn't offer that kind of upside cushion.
This is especially troubling because leisure companies like Cedar Fair, which rely on locals' dollars aren't doing so hot right now. Struggling casual-dining chains like Applebee's
Blame the economy. Blame the Internet. Blame home theaters or home cooking. You can even blame the promotionally debilitating wave of freak park accidents this year.
I know what you're thinking. Even through this lull, Cedar Fair has still been able to grow per-capita guest spending. And if this is a cyclical hit, Cedar Fair will eventually bounce back.
Unfortunately, it's not a matter of getting the company back to where it once was. Over the past year, Cedar Fair's quarterly debt interest payments have surged from $8 million to $36.2 million in the most recent quarter.
That's not the only hurdle Cedar Fair must clear. The company is also paying more than $100 million a year in chunky quarterly distributions. It doesn't seem sustainable. Those payouts are eating up nearly one-third of EBITDA, with interest payments devouring one-half. What will income-chasers do if that lofty 6.8% yield gets slashed? They're not likely to stick around.
As a guest on a CoasterBuzz podcast last month, I pointed out that I may be the only financial analyst to have ever experienced a rollback on Top Thrill Dragster, the chain's largest coaster. It's a rare treat, in which the initial launch isn't enough to get you over the 420-foot high hill, so you come rolling back down. (Don't worry, it's safer than it sounds.)
I mention this only because I can't be the only one wishing that Cedar Fair could do a little rollback of its own. If only it could go back in time, before it acquired the Paramount Parks chains and the troubled Geauga Lake. CEO Dick Kinzel could do no wrong at the time. His collection of regional parks had turnstile consistency, enhanced by the upside of transforming its gated attractions into destination resorts, with adjacent overnight accommodations like those at Cedar Point.
The seasonal challenges would hamper the company's efforts to become the next Disney
Roll back, Cedar Fair. Roll back to a time when I felt it was safe to open my eyes.
Longtime Fool contributor Rick Munarriz enjoys taking his family on coaster treks over the summer. He does own shares in Disney and units in Cedar Fair. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy clears the hill on the first try.