Bowlers Journal International - March 2008 - (Page 76)

HALLMARKS BY WALLY HALL TODAY'S MIXED BUSINESS MESSAGES Some center owners are seeking an exit strategy. Others see a tremendous buying opportunity. ARE SOME BOWLING PROPRIETORS QUIETLY CHECKING out the potential involved in selling their center(s)? Three factors make this a distinct possibility: today's uncertain economic outlook, the continued decline in league activity, as well as increased regulatory controls such as smoking bans. In surveying the leading brokers and consultants who handle the sale and acquisition of bowling houses, it appears they not only have stronger lists than normal of centers for sale — in both number and quality — but more potential sellers have been seeking their advice in recent months. For most bowling center owners there are three main exit strategies: 1. Sale of the real estate for redevelopment purposes. 2. Converting the existing building to a more profitable use. 3. Sale of the business to a new operator. Most proprietors will know if 1. and 2. represent potential exit strategies, as they likely would have received inquiries from potential buyers in the past. If the bowling center is successful, it is very sellable; if it is producing only marginal results, it may be more difficult to sell, requiring a buyer prepared to turn the situation around. Interestingly, just as there are people motivated to sell at this time, there also are potential buyers who see this as a great time to buy. According to one consultant, these buyers comprise two groups. One represents 55-75% of potential buyers, and consists of those who already have some involvement with bowling; e.g., they own a center, manage a bowl, run a pro shop, etc. The smaller group comes from outside bowling, and these entrepreneurs are attracted by the profit margin and believe they will achieve 18-19% return on investment. The potential buyers who already own a center have already exploited the internal growth of their existing center(s) by doing such things as modernizing, upgrading the food and beverage operations, and changing their business mix. They want to grow, but are fearful of doing this through building a new center because of the high cost, and the risk associated with a new facility. They see an acquisition as a safer and more profitable route. A strong motivating factor for buyers today is the very favorable interest rates that are available — both short and long term rates are at low levels. 76 bowlers journal international MARCH 2008 Sandy Hansell, one of our industry’s foremost authorities on bowling center acquisitions, reported that his company has a good list of blue chip centers for sale, that his company is structuring deals for the buyer using SBA guaranteed loans on very attractive terms, and is not experiencing any major financing difficulties. Another broker reported that he constantly fields calls from those inquiring about potential centers or small chains they might acquire. Many want to take advantage of the low interest rates that are available. Ken Paxton, among bowling's most creative consultants on financing centers, believes this is a good time to buy, notwithstanding the “credit crunch.” He says this is the case if the center being bought has a good cash flow (and 1.25 to 1.35% debt service coverage), good real estate is involved and the buyer has a good personal credit (score of 700 or above). THE CREDIT ISSUE I discovered that local banks which generally keep commercial mortgages in their portfolios have not been affected too much by the credit pinch. However, the bigger banks are being much more careful and reviewing all deals closely. Also, buyers seem to be most interested in centers located in the growing and prosperous states in the west, south and east, as well as in retirement states such as Florida and Arizona. Surprisingly, I found that family entertainment centers (FECs) already are being listed for sale. It was interesting to learn from Louis Chapman of Confidential Brokerage Services that he has been involved in “1031 taxfree exchanges.” In one case, the seller avoided capital gain tax on the sale of his center, and swapped the proceeds for a bigger bowling facility. Small centers appear to be harder to sell. In order to make the economics work, potential buyers have to be very actively involved in working at the center, and their return is essentially the compensation they earn. In effect, they are buying themselves a job in many cases. Of course, as they pay down the debt, they also build equity in the business. At what prices are bowling centers are selling? It depends on the following factors: ■ Performance history — sales, profits, cash flow, margins. ■ Location, demographics and quality of real estate. ■ Condition of equipment, building and furnishings. As a guide, centers in good condition that have been successfully operating at levels comparable to the average levels in the 2006 BPAA Benchmark Study appear to be selling for around six times the earnings before depreciation interest and tax (EBITDA). Below-average performers sell for less and superior operations sell for as high as seven times EBITDA. The short-term economic uncertainty may worry some, but others view it as a time of opportunity for growth. Those who pursue this growth by acquisition will be fortunate to achieve a favorable cost of financing that may be there only for as long as any downturn lasts. In short, if you're growth-oriented, grab the opportunity while you can.

Table of Contents Feed for the Digital Edition of Bowlers Journal International - March 2008

Bowlers Journal International - March 2008 Contents Leading Off Letters Bowlitically Incorrect Par Bowling The Coach Calendar Inside Line Tournaments The Truth Be Bowled Pro Bowling Back On Track Weber Tales Spares Do Matter Cover Story Up Close USBC Women's Time Capsule Flashback Strategy Session Guest Column Regional Roundup Team USA Trials Military Salute Global Guide No Holes Barred Marketplace Bowling Summit Museum Update Hall Marks Advertisers' Index Rememberance Classified Advertising Intelligencer Business Calendar Business People Strikes Me

Bowlers Journal International - March 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.