Ten Entertainment 411p

Gain to date: 90.9%

Original buy at 214.7p on 29 September 2022

Just over a year ago we argued that tenpin bowling and entertainment group Ten Entertainment (TEG:AIM) was a great company trading at a great price.

Not many hospitality and leisure businesses have been able to hold their prices below 2019 levels, drive footfall, increase spend per head and at the same time increase sales per square foot, which is testament to the quality of the management team and the strength of the business model.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

At the time, Shares commented: ‘If the market doesn’t recognise the great value on offer from the shares now and drive a rerating in the stock, a trade or private equity buyer could feasibly step in and acquire it.’

That is exactly what has happened, after news broke on 6 December the company had agreed an all-cash offer from private equity firm Trive Capital pitched at 412.5p per share.

The offer represents a 33% premium to the prior closing price and is 23.3% higher than the all-time high of 334.5p reached in 2020 just before the start of the pandemic.

While that may sound great, the average premium paid in 2023 has been around 60% according to law firm Ashurst.

In terms of valuation, the offer represents a multiple of 7.3 times the company’s adjusted trailing EBITDA (earnings before interest, tax, depreciation, and amortisation) after rental costs.

‘While clearly a striking premium to the closing price, these valuation multiples do not look stretched,’ was the Numis view.

WHAT SHOULD INVESTORS DO NOW?

The company’s directors are unanimously recommending the offer and Trive has secured the support of roughly 39.51% of existing shareholders including Harwood Capital, Slater Investments and Gresham House, who own 15.5%, 12.3% and 11% respectively.

With the shares trading close to the offer price and institutional shareholders backing the offer, it looks like a done deal. Therefore, shareholders should consider taking a profit and reinvesting the cash.

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