Apollo Global Management LLC, which acquired Chuck E. Cheese in February, is weighing a bid for another chain that mixes food and entertainment, Dave & Buster's Inc., two people with knowledge of the matter said.
Dave & Buster's owner Oak Hill Capital Partners is seeking about $1 billion for the company, which posted sales of $608 million in its most recent fiscal year, said the people, who asked not to be identified because the information is private.
Jefferies Group LLC and Goldman Sachs Group Inc. are running the auction, one person said.
For Apollo, the move would mean doubling down on the industry after its takeover of Chuck E. Cheese, a kid-oriented purveyor of pizza, arcade entertainment and animatronic robots. The private-equity firm gained almost 600 restaurants and arcades when it acquired the chain's owner, CEC Entertainment Inc., in a deal valued at $1.3 billion. Dave & Buster's also runs a chain of entertainment complexes, though it caters more to adults -- with a focus on billiards, sports and beer.
"A Dave & Buster's acquisition could lead to synergies with Chuck E. Cheese, including greater purchasing scale for food and entertainment and lower distribution costs," said Jennifer Bartashus, an analyst at Bloomberg Industries.
Raphael Gross, a spokesman for Dave & Buster's at ICR Inc., declined to comment. Charles Zehren, spokesman for Apollo at Rubenstein Associates, declined to comment on its interest in Dave & Buster's. Spokesmen for Goldman Sachs and Jefferies also declined to comment, while a representative for Oak Hill didn't respond to a phone call seeking comment.
IPO Considered Dave & Buster's was bought by Oak Hill for $570 million in cash in June 2010. As of December, the chain was considering a sale or public stock offering that would value the company at more than $1 billion, Reuters reported, citing people familiar with the situation.
Sales at U.S. arcades and entertainment and food complexes have been slowly increasing. Industry revenue gained 0.3 percent last year and is projected to rise 1.7 percent this year to $1.94 billion, according to research firm IBISWorld Inc. Chuck E. Cheese has the largest share of the market, with 43 percent, followed by Dave & Buster's with 32 percent, the data show. Still, the companies face competition in other areas, including home-gaming systems and local arcades.
Even with the slow growth, the chains are outperforming much of the restaurant industry.
"Both Chuck E. Cheese and Dave & Buster's have had comparable-store sales that generally outpace other family- oriented and casual-dining chains, including Denny's, Ruby Tuesday and Applebee's," Bartashus said.
Dave & Buster's opened its first location in Dallas in 1982, after the owners of an arcade and a bar decided to go into business together. The company now has more than 60 locations in the U.S. and Canada. A deal could potentially help expand the chain, since Chuck E. Cheese already has a wider range of locations, Bartashus said.