Apollo to invest 25 percent equity in Chuck E Cheese parent

Apollo announced on Jan 16 that it would buy CEC Entertainment in a deal valued at $1.3 billion. The firm founded by Leon Black is investing $335 million of equity, according to an SEC filing. That’s around a 25 percent contribution, below the 28 to 30 percent equity check typically provided by private equity firms.

It is a “bit on the low side,” said one private equity executive.

However, the “debt markets in restaurants is white hot,” said another private equity executive.”[Apollo] could probably get 5x leverage.”

The investment is not the lowest equity contribution from a firm lately.

BMC Software was sold to a group led by Bain Capital and Golden Gate Capital last year in a deal valued at $6.9 billion. The buyers contributed $1.25 billion of equity, or 14 percent of the total deal, according to peHUB, far below the normal amount firms invest in a deal.

Apollo’s acquisition of CEC includes a go-shop clause, allowing CEC to solicit rival bids until Jan. 29, the SEC filing said. The company may not find another buyer – Apollo reportedly made a first round bid to buy CEC and was never asked to make a second round offer, suggesting the firm was the only serious suitor, the New York Post said.

The Chuck E Cheese investment is coming from Apollo’s eighth fund which closed this month with $17.5 billion in LP commitments, making it the largest pool raised since the global financial crisis.

Including another $880 million that is coming from Apollo and affiliated investors, Fund VIII’s total is about $18.4 billion.

Luisa Beltran is a senior reporter for peHUB