In June 2023, the bowling-and-bocce chain Pinstripes announced plans to go public in a reverse merger with the SPAC Banyan Acquisition Corp. At the time, the deal was said to give the company a valuation of $520 million.
It was all downhill from there.
That’s a bit simplistic. The merger was complete, after all, and Pinstripes officially went public in early January of 2024. Yet by the company’s second earnings call, in June of last year, executives were already talking about margin improvement at its restaurants. And by March of this year, just 13 months after it went public, Pinstripes’ stock was delisted. And then earlier this month it declared bankruptcy.
How does a company go from $500 million valuation in a go-public merger to bankruptcy filing in just two years? By taking that step when its industry valuations were at peak, growing very aggressively, then watching as weak sales hit its high-cost, heavily-indebted business.
Pinstripes’ bankruptcy is indicative of the still-volatile nature of the restaurant industry after the pandemic, its high costs and then weak sales, as well as the downfall of the so-called eatertainment sector. And while we’re at it we might as well throw out a warning about putting too much stock into companies that go public via SPAC, or special purpose acquisition company. Pinstripes’ bankruptcy is the second recent such filing of a company that went public in that manner.
The eatertainment sector has been around for years, thanks to companies like Chuck E. Cheese and Dave & Buster’s. But the surging popularity of companies like TopGolf attracted investor interest, as did a sense that consumers were eager to spend their money on “experiences.”
The pandemic added a giant dose of steroids to the whole thing and investors were suddenly throwing money at companies that combined food with any kind of experience imaginable, from pickleball to puzzles.
These companies build massive venues to fit both the games and the restaurants, and as such they require heavy investment dollars along with debt. Pinstripes’ facilities are 26,000 to 38,000 square feet, big enough to feature patios as well as bowling alleys and bocce courts.
Each of the Pinstripes venues has high unit volumes, averaging $7.4 million. About 20% of that revenue comes from games.
The idea behind these concepts is that the entertainment generates more profitability than does food, while giving customers reason for sticking around, where they will hopefully order more food and drinks.
But building those locations takes a lot of money, and Pinstripes needed a lot of financing to open them. It filed for bankruptcy with $143 million in secured debt, $115 million of which is to Silverview Credit Partners—which acquired the debt on Pinstripes from Oaktree Capital in July.
That’s the company converting some of that debt to buy the eight remaining Pinstripes locations in a $16.6 million deal.
Oaktree in March agreed to a refinancing deal with Pinstripes that was supposed to provide $7.5 million in capital for the ailing chain. That deal never closed and in April Pinstripes hired a restructuring advisor.
There was other financing, too, such as $2.6 million worth to fund bowling equipment, and $3.7 million in loans from landlords. Pinstripes also owed about $15 million to Granite Creek Capital Partners, which invested in the chain in 2023. Many of the 10 locations closed featured collateral used for those loans.
“To be blunt,” James Katchadurian, chief restructuring officer for Pinstripes, said in a court filing, “the process proposed to be consummated through these Chapter 11 cases is not perfect, and it is not where the debtors wished they were now.”
Pinstripes took on that kind of debt to fund an aggressive growth plan. The company had 13 locations when it went public in early 2024. It opened another five locations after that and had several others under construction.
Yet those locations cost more to operate than initially expected, due largely to inflation. The company’s profitability had started falling short of expectations shortly after it went public, prompting a shift in focus. Executives have long argued that their more mature locations perform better over time. But the company apparently didn’t have that kind of time.
That’s because the chain’s sales began to stumble last year, which prompted further cost cuts. That included a 7.7% decline in the key metric in the last three months of 2024, which the company blamed in part on “adjustments to our marketing that had unintended impacts on our business.”
The company furiously cut costs to adjust for the weakening sales, which improved per-store EBITDA, or earnings before interest, taxes, depreciation and amortization. But the company had too much debt, too much construction and just not enough cash. The company had just $2.4 million in cash on hand in early January. That’s a problem.
Food-and-games concepts like Pinstripes are often more potential than reality. They are fun places with good food and great atmospheres. But often the finances don’t justify the aggressive growth that investors want.
BTIG analyst Peter Saleh in his last note on the company said, “We remain Buy-rated given the development potential and uniqueness of the concept, but acknowledge we’ve gotten this very wrong to date.”
A lot of others did, too. The eatertainment business has lured a lot of investors of all kinds, based on strong sales in the immediate aftermath of the pandemic. Those sales did not last long, and Pinstripes and its investors paid the price.