The parent company of Chuck E. Cheese's and Peter Piper Pizza said Monday that it plans to go public later this year following a reverse merger with a shell company.
CEC Entertainment, the Irving, Texas-based company that also owns Peter Piper Pizza, plans to merge with a publicly traded London-based “blank check” company called Leo Holdings.
Once the deal is completed, Leo will change its name to Chuck E. Cheese Brands Inc., and the combined company will trade on the New York Stock Exchange.
CEC expects to have a $1.4 billion enterprise valuation once the merger goes through. CEC will use $300 million in cash from Leo to pay down debt.
Existing management of the company plans to remain in place, and Queso Holdings Inc., the subsidiary of private-equity firm Apollo Global Management that owns most of CEC, will remain its largest shareholder and will own 51% of the company. Apollo is not selling any shares.
Apollo took CEC private for less than $1 billion in 2014. Later that year it acquired Peter Piper Pizza.
By merging with a shell company and going public, Chuck E. Cheese's will become the first newly public restaurant chain since 2015.
“The executive team is eager to work with Leo as we continue to aggressively pursue opportunities in the next stage of the company’s evolution,” CEC CEO Tom Leverton said in a statement. He said the company plans to improve customer experience, “unlock operational investments,” add new locations and “opportunistically” pursue acquisitions.
CEC has been believed to be eyeing a return to the public markets since 2017, when it was reported to be considering an outright IPO. The company was then put up for sale that year.
The public markets have not necessarily been receptive to restaurant company IPOs in recent years. And the chain’s same-store sales began struggling that year.
They have recovered since, making the company a more favorable target. Same-store sales improved through much of 2018, including 3.3% growth in the fourth quarter. And same-store sales rose 7.7% in the first quarter, according to preliminary results.
Chuck E. Cheese's operates restaurant-and-gaming venues that generate much of their revenue through profitable video games.
“It is clear to me that the iconic Chuck E. Cheese brand is a part of Americana,” Lyndon Lea, chairman and CEO of Leo Holdings, said in a statement. “Rarely do brands possess such rich heritage and imbue such fond memories across generations. In CEC we have secured an extremely attractive acquisition.”
Lea will join the company as co-chairman along with Apollo’s Andrew Jhawar.
In a blank check reverse merger, a shell company is set up on the public markets and takes investors with the explicit purpose of merging with a private firm to take it public. Using funds from those investors, it buys a company and begins trading under the acquired company’s name, taking it public.
Chuck E. Cheese's operates more than 600 locations in 47 states and 14 countries. Peter Piper operates 144 locations in six states.