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Dave & Buster’s Becomes a Private Equity Pawn

Yesterday, private equity giant KKR disclosed a 10.7% stake in Dave & Buster’s. KKR said it has had and will continue to have conversations with management and stakeholders about pushing for change at the Times Square of restaurant chains.

That’s like a fish riding a bicycle: not something you see every day. As Axios’s Dan Primack points out, buyout firms like KKR have built reputations as management friendly. It’s not a hostile takeover yet, but…in publicly stating that it’s pursuing major changes at Dave & Buster’s, KKR sounds more like an activist investor than your friendly neighborhood PE shop.

What’s going on

Private equity and activist investing have always been prime “difference between” Google search material. But lately, “Private equity funds are beginning to adopt activist tactics and activists are increasingly engaging in private equity transactions,” writes Sidley Austin associate Amadeus Moeser.

Some examples:

  • Private equity firms like KKR, Sycamore, and Golden Gate Capital have built up “toehold” stakes in public companies (usually under 5%) as a means of getting in front of management to start talking buyout options.
  • And activists like Elliott Management have started buying entire companies, typically a strategy reserved for PE.

One reason Robin Thicke is playing: Activist investors and private equity often target similar types of companies, making it easy to swap investment strategies. As long as you change something so the teacher doesn’t notice.

Still…

There could be a reason KKR is exploring hard-line options for D&B—such as board changes—that don’t really seem like options:

  • Dave & Buster’s stock had fallen 18.5% in a year before Friday’s announcement.
  • The chain has almost $1.9 billion of debt. Its market cap was about $1.3 billion Thursday.
  • It said this week that same-store sales will fall 2.5% to 3% in the fiscal year that ends early February.

After KKR disclosed the stake, Dave & Buster’s shares climbed 12.7% Friday.

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