Apollo to invest 25 percent equity in Chuck E Cheese parent

Apollo Global Management’s bite of Chuck E Cheese’s parent appears to be more of a morsel.

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

One PE exec said the 25 percent equity is a “bit on the low side.”

A second PE source said that the “debt markets in restaurants is white hot. [Apollo] could probably get 5x leverage.”

The investment, however, isn’t the lowest equity contribution from a PE 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 equity, or 14 percent, of the total deal, peHUB has reported. That’s far below the normal equity check from PE firms.

Apollo’s purchase of CEC also includes a go-shop clause, which allows the company solicit rival bids until Jan. 29, the SEC filing said. It looks unlikely that another buyer will turn up, however. Apollo reportedly made a first round bid to buy CEC and was never asked to make a second round offer. This means that Apollo was probably 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.

Photo courtesy of Chuck E Cheese