Successful ‘buy-and-build’ strategy transformed this underperforming domestic leisure park operator into a leading pan-European player.
A hugely challenging deal, Parques personified complexity from the outset: the first deal of its kind in Spain (Spain’s first private-equity-backed public-to-private, which some doubted could be done), an under-valued and opportunity-constrained business in an out-of-favour sector, and the requirement for a tireless and resource-intensive search to identify and deliver the right growth platforms abroad.
What we saw, however, was a potential acquisition platform for an ambitious consolidation play in a highly fragmented European market poised for significant growth. Our investment thesis was to turn a local company with significant operational and managerial shortcomings into a best-in-class European entertainment platform.
“As Spain’s first PE-backed public-to-private, the deal required vision and guts. Advent understood the business model from day one and worked hard with us to fine tune it. They know how to avoid stepping on management’s toes while at the same time helping to create value, particularly on acquisitions, where their capabilities and international network proved to be instrumental.” - Richard Golding, CEO, Parques Reunidos
Our judgment proved right, and during the subsequent four years a reinvigorated company led by an experienced buy-in management team saw an intensive buy-and-build programme centred on seven international acquisitions supported by a programme of operational improvements and significant capital expenditure. The business was acquired in 2007 by Candover.
The opportunity for Parques Reunidos lay in the untapped potential of the European leisure park market.
Attracting only one-third of the visitors of its US counterpart, demographic trends, cheaper air travel and rising disposable income amongst the target customer base all presented significant growth drivers. To provide some sense of scale, the European visitor attractions market grew by 4.3% per annum between 2001 and 2006, with a similar growth rate predicted over the next five years. Worldwide, visitor attractions generate over €17.7 billion of revenue per annum, excluding animal and water parks.
“Parques Reunidos was, in my view, a landmark transaction and one that every sponsor would have loved to have worked on. It was, however, a truly complex transaction and not one that everyone could have completed. In doing so, Advent truly excelled and created a benchmark for buy-and-build strategies to come.” - Beltran Paredes, Managing Director, Royal Bank of Scotland
The industry was ripe for consolidation: at the time of our investment Europe’s top 20 leisure parks were controlled by 17 different companies, compared to the six operators who controlled the top 50 parks in the US.
More broadly, the European market consists of some 600 permanent attraction parks, of which some 85% are either family owned or single-asset investments. The relatively small number of companies that operate leisure parks, such as Parques, rather than destination parks, such as Euro Disney, also seem to be at an advantage. Unlike destination parks, regional parks have proven resilient to general economic conditions due to predictable revenue streams generated by a mix of local, regional and short-stay visitors.
It is also an industry that favours existing players given the extremely high barriers to entry associated with the difficulty in forecasting demand before a park’s opening and the hefty capital expenditure required in set-up.
The groups who succeed in this environment are therefore operators with a balanced portfolio capable of attracting both local customers and seasonal tourists. A broad portfolio also acts as a revenue stabiliser: good weather in one part of Europe can offset the negative impact of poor weather elsewhere.
In Parques, Advent saw just such an operator: a regional player whose portfolio could be broadened and diversified through a smart acquisition strategy in order to capitalise on the trends presented by a burgeoning industry. Moreover, an acquisition strategy would provide tangible profits and cash flows by avoiding the high levels of capital expenditure associated with new park construction.
New management team
Parques’ growth was spearheaded by a new management team led by Richard Golding and José Díaz, the former CEO and COO of Parques’ main Spanish competitor, Aspro Ocio. During Golding and Díaz’s tenure from 1998 and 2004, Aspro grew from a small local leisure park into an international player, expanding its park portfolio from five to 23 assets in six European countries.
One of the first initiatives undertaken by the new management team was to set about improving the performance of Parques’ existing domestic park portfolio.
The approach was two-fold: maximising sustainable EBITDA and improving deteriorating quality and service levels. Growth drivers were addressed in four areas: tight cost control, cost-effective marketing and promotional policies, strong capital expenditure disciplines and innovative customer loyalty initiatives to increase in-park spend by visitors. Results were quick to follow, with permanent improvements made to the company’s cost base, MIS systems, pricing policies and supplier contracts, accompanied by a wide-ranging redefinition of their approach to customer care. The development of a resulting Parques ‘best practice’ model spanning all of these areas not only generated new efficiencies, but also formed the basis of the company’s expansion, introducing standard operating methodologies across a nationally dispersed portfolio of properties while reaping the benefits of shared overheads.
“Having previously worked with Advent I have experienced first-hand their ability to turn complex operational integrations into manageable action plans, strongly align itself with management, and then execute. ” - Fabio Terlevich, Executive Director, Morgan Stanley Alternative Investment Partners
Significant financial investment was made across all Parques’ parks, with a particular emphasis on undercapitalised assets. Two new roller coasters were built at Madrid’s Parque de Atracciones; the Zoo-Aquarium welcomed an orangutan family and saw the comprehensive refurbishment of many of its public facilities; a lengthy two-year negotiation with the Chinese government saw the acquisition of a pair of panda bears in June 2007 for the Madrid Zoo; and finally, Selwo, an underperforming animal park in Spain, was extensively remodelled and made profitable for the first time.
With its domestic portfolio optimised, Parques created a powerful platform from which to target similar businesses in Spain and the rest of Europe. The underlying strategy was to build diversity of earnings by both geography and activity. The acquisition strategy was further focused on properties with a profitable operating history that could be improved by the introduction of best management practices.
The resulting new assets saw not only geographic diversity, with parks in Belgium, France, Italy, Norway, and Argentina, but the addition of new leisure categories through three new attraction parks, three water parks and two animal parks. The result was greater cash flow stability by making Parques less vulnerable to fluctuations in local economic and weather conditions. It also created new cross-selling opportunities, enhanced purchasing power and operating synergies – including the ability to move attractions and animals from one park to another.
Advent’s international reach was on full display as the strategy was implemented, with deal teams in France, Italy, Spain, Argentina and Brazil evaluating potential acquisitions. Notably, the majority of those companies targeted were either “off-market” or managed through a limited competition process.
Only three years post investment, and the successful execution of our value creation plan had transformed Parques Reunidos from an undervalued and opportunity-constrained operator into Europe’s second-largest operator of regional leisure parks, with 22 parks in Spain, Italy, France, Belgium, Norway and Argentina and more than 9 million visitors per year.
As Parques Reunidos CEO Richard Golding concludes: “The results speak for themselves.”
Parques Reunidos was acquired by Candover in 2007.
"Advent’s international reach was on full display as the strategy was implemented, with deal teams in France, Italy, Spain, Argentina and Brazil evaluating potential acquisitions. Notably, the majority of those companies targeted were either “off-market” or managed through a limited competition process."