In 2010 AMF Bowling, one of the US’s largest bowling chains, was struggling. Lower consumer spending in the wake of the financial crisis, a secular decline in league bowling and some operational inefficiencies were taking their toll. Additionally, the business faced declining EBITDA and significant debt maturities in 2012 and 2013.
Cerberus Capital Management saw potential in the business and, between April 2010 and August 2012, purchased tranches of second lien debt in AMF on the secondary market at distressed prices. AMF filed for Chapter 11 bankruptcy in November 2012 after an unsuccessful sales process.
While in bankruptcy, the debtor handed control of the company to Cerberus, which created an operationally focused investment thesis for the company, through a debt-for-equity swap. The firm had identified opportunities to make significant operational improvements at AMF, including reducing operating hours, renegotiating contracts with providers, reassessing capital expenditure and boosting marketing efforts.
Post-bankruptcy, Cerberus merged AMF with a smaller bowling centres operator, Bowlmor, which had an experienced management team capable of supporting a turnaround plan. Together with Bowlmor management, Cerberus worked to identify additional operating synergies a merger could realise and used the potential for a Bowlmor-AMF merger as the basis for formulating a detailed plan of reorganisation. Cerberus ended up with a majority controlling equity interest in the combined entity.
Cerberus and Bowlmor AMF management immediately implemented a 100-day plan to integrate the two companies and enact operational improvements.
Cerberus oversaw strategic investment in capital expenditures across the chain, focusing on customer-facing improvements, sales and marketing, enhanced food and beverage offerings, customer service improvements and an emphasis on customer satisfaction.
Cerberus and management addressed the decline in league bowling by focusing on nightlife and events. AMF’s portfolio of more than 200 centres were upgraded, with improvements ranging from cosmetic changes to full-scale remodeling to include private events spaces, a full selection of games and amusements, and kitchen upgrades. AMF also transitioned management of video arcades, previously outsourced, to in-house, and added attractions such as mini-golf and laser tag at some locations.
The team implemented marketing efforts across the platform, including a branded advertising campaign called “Bowling Night in America” centred around the idea of bowling re-establishing itself as the activity of choice on Saturday nights.
Cerberus invested in IT and brought in operating professionals to help mine data the company was collecting but not using, helping to better understand the customer base, where revenue was being generated and how to enhance offerings to increase clientele numbers.
Cerberus also assisted Bowlmor AMF’s management team with bolting on the company’s number two competitor, Brunswick, which required a complex carve-out from its parent company. This added clusters of bowling centres in attractive urban markets, as well as additional scale to investment in marketing and technology.
By March of this year, Bowlmor AMF’s EBITDA had grown 155 percent from 30 June 2013. With 305 bowling entertainment centres, Bowlmor AMF is now eight times larger than its nearest competitor.
In June, Cerberus sold its position in Bowlmor AMF to Atairos Group, a strategic investment firm backed by Comcast, delivering an 8.7x multiple and an internal rate of return of 45 percent for Cerberus’s investors.
Large-cap: The Carlyle Group – Vogue International
Upper mid-market: Cerberus Capital Management – Bowlmor AMF
Lower mid-market: Francisco Partners – Paymetric
Small-cap: The Riverside Company – YourMembership
Upper mid-market: ShawKwei & Partners – YongLe Tape
Lower mid-market: Advantage Partners – Hisense Broadband Multimedia Technologies*
Small-cap: Mekong Capital – Mobile World
*Hisense is not included in the write-ups due to confidentiality issues