A Powerful One-Two Combination

In boxing, a one-two combination is a jab followed by a cross. In the insider buying ring, our view of a one-two combination is when the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) buy at the same time. The CEO is number one on the management chart and the CFO is number two.

Dave & Buster’s Entertainment, Inc.’s (PLAY) top two stepped into the arena and took a swing at their company’s stock. CEO Kevin Sheehan bought 10,000 shares and CFO Michael Quartieri bought 5,000 shares for a combined $632,200. (1)

CEO Sheehan has a history of buying and selling PLAY, more selling than buying.  Since 2015, the head honcho sold a handful of times, collecting nearly $3 million in proceeds. On the other side of the tape, Sheehan has been a buyer on three occasions, investing $1,385,330. (2)

For CFO Quartieri, it’s his first open market trade of PLAY stock. The CFO’s limited prior activity was options related. (3)

Sometimes investors are left to wonder what motivated the insiders to buy or sell. In Dave & Buster’s case, the reason appears to be simple. PLAY recently purchased Main Event for $850 million. Main Event is similar to Dave & Buster’s as it operates family entertainment centers which feature billiards, bowling, arcade games, virtual reality games, laser tag, rock climbing, mini golf, gravity ropes course, and karaoke. (4)

CEO Sheehan says of the acquisition, “This is a transformational combination for both brands. From a strategic fit perspective, Main Event’s business model, footprint and asset quality aligns well with Dave & Buster’s. Main Event targets a different demographic, families with younger children, while Dave & Buster’s has primarily targeted young adults. While each brand will continue to operate independently, ownership of both brands enables us to expand the breadth of customers we serve together, while also enabling each brand to better differentiate its offering to its core consumer. Main Event’s existing footprint works well with Dave & Buster’s current geographies and each brand has significant growth opportunities. We expect the acquisition to be accretive to growth and earnings.” (5)

Jefferies’ analyst Andy Barish (is that a good name for an analyst?) believes the combination will work to the company and shareholders’ advantage. The analyst told investors, the purchase “will allow for more growth in strong [Dave & Buster’s] markets such as the West Coast and East Coast given [the company’s] domain knowledge and relatively limited exposure in those markets for Main Event.” (6)

Barish, who is bullish on PLAY, has a $60 price target on the entertainment company, which is a little higher than the one-year consensus price target of $56.44. (7)  The combined companies generated approximately $1.955 billion in revenue with Dave & Buster’s accounting for $1.3 billion and Main Event estimated at $651 million. (8)

Overall: The combined companies could be a force in the family entertainment space and eclipse $2 billion in revenue in 2022. Shares will be sensitive to new COVID restrictions, should they come. Inflation could have a double negative impact on the new Dave & Buster’s Entertainment, Inc.’s (PLAY) company if its input costs rise as discretionary spending falls.

PLAY is appropriate for investors with an above-average risk tolerance and, due to potential inflationary pressure on margins, new shareholders should have at least a two-year time horizon.

 

1 – https://www.secform4.com/insider-trading/1525769.htm

2 – https://www.secform4.com/insider-trading/1047582.htm

3 – https://www.secform4.com/insider-trading/1441431.htm

4 – https://en.wikipedia.org/wiki/Main_Event_Entertainment

5 – https://ir.daveandbusters.com/news-releases/news-release-details/dave-busters-announces-acquisition-main-event-835-million-chris

6 – https://www.fool.com/investing/2022/04/14/why-restaurant-stocks-were-cooking-with-fire-this/?

7 – https://finance.yahoo.com/quote/PLAY?p=PLAY

8 – https://www.zoominfo.com/c/main-event-entertainment/73664511