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KKR reveals activist stake in Dave & Buster’s

KKR long ago ditched its reputation as an orchestrator of hostile takeovers. But on Friday, the firm disclosed in an SEC filing that it has built a 10.7% ownership stake in Dave & Buster’s, with plans to make strategic changes.

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KKR long ago ditched its reputation as an orchestrator of hostile takeovers.

But the publicly traded buyout giant has apparently opted to pursue a more active public equity strategy.

The firm disclosed Friday in an SEC filing that it has built a 10.7% ownership stake in Dave & Buster’s, a Dallas-based restaurant chain known for offering customers arcade games, billiards and bowling in a sports bar atmosphere.

While KKR has announced no plans to pursue a full buyout, it has been engaged with the company’s management about making strategic changes. And it has an array of options on the table, including holding discussions with current shareholders.

“KKR has held and intends to continue to engage in discussions with management or the board of directors ... about its business, operations, strategy, plans and prospects, from time to time,” according to the SEC filing.

While that sounds like the role an activist investor might play, the firm claims it simply likes the business and has a good relationship with the management team. KKR in the past has instituted a similar strategy in buying up shares of Amedisys, a publicly-traded provider of home health and hospice services.

Dave & Buster’s shareholders had seen the company’s stock price dwindle over the past year, dropping more than 18% YoY as of Thursday’s close. But shares jumped more than 12% Friday after news of KKR’s involvement, pushing to $47.37 and increasing the company’s market cap to roughly $1.5 billion. KKR previously disclosed a roughly 2.7% stake in the business, according to a Sept. 30 securities filing.

KKR doesn’t have any funds dedicated exclusively to private investments in public entities, though according to Axios, it has dedicated a small part of its most recent flagship fund to making deals usually reserved for activist investors such as hedge funds. And it isn’t the only buyout shop thinking more about the strategy. Earlier this month, Bloomberg reported TPG Capital was planning to raise a buyout fund dedicated to taking minority stakes of 5% or less in public companies.

Dave & Buster’s management should have plenty of experience negotiating with private equity. In 2010, Oak Hill Capital acquired the company from Wellspring Capital Management in a deal valued at $570 million. The company tried to go public two years later before bowing out, then eventually went public in 2014 after negotiations with other suitors—one of which included Apollo Global Management-backed Chuck E. Cheese—did not lead to an agreement.

Founded in 1982, Dave & Buster’s has grown to more than 110 locations. The company posted roughly $1.35 billion in revenue and between $275 million and $280 million in EBITDA in fiscal year 2019, with comparable store sales dropping between 2.5% and 3%.

Featured image via Mark Davis/Getty Images Entertainment

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    Written by Adam Lewis
    Adam Lewis was a financial writer covering private equity for PitchBook. He covered dealmaking, company and investor news for the PitchBook newsletter and blogs about the intersection of private equity and politics. A graduate of the WSU’s Edward R. Murrow College of Communication, Adam was previously a sportswriter covering the Mariners and Seahawks.
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