Finance

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

SeaWorld Entertainment's latest nose dive is a tough swallow for its biggest shareholder, Blackstone.

The theme park operator's shares on Thursday posted their biggest daily drop since August 2014, sinking 13.2 percent to a record low after the company cut its earnings outlook for the year and reported weak attendance in Florida. 

Thinning Crowds
SeaWorld Entertainment's second-quarter attendance dropped to its lowest point since the company began disclosing it
Source: Company filings
* The company attributed the drop to a decline in Latin American visitors to its Florida park as well as the effect of Tropical Storm Colin

Now trading at $13.50 each, SeaWorld's shares have halved since its April 2013 IPO. This stings, especially considering Blackstone has had ample time to shed its stake. After selling 19.9 million shares at $27 in the IPO, the firm sold a block of 18 million shares in December 2013 at $30 a pop and an additional 15 million shares in March 2014 at the same price. Its remaining 19.5 million shares are worth about $250 million, roughly $332 million less than if the firm had sold that parcel at $30, too. 

Sinking
SeaWorld's shares slumped to their lowest point since the company's initial public offering, partly because of weak Latin American attendance at its Florida theme park
Source: Bloomberg

Assuming it sold its entire stake at $27, Blackstone was set to lock in a return of around 2.6 times. And while the firm will still make a healthy profit (including from dividends along the way), its final return may end up similar to what it would have received by accepting, rather than snubbing, a bid for SeaWorld from rivals Onex Corp. or Apollo Global Management before its IPO.

Such a result underscores the fact that if valuations aren't too different, private equity firms are better off pursuing outright or partial sales over IPOs, such as Bain's recent sale of Blue Coat Systems and Thomas H. Lee Partner's sale of a stake in InVentiv Group to Advent International. Both Blue Coat and InVentiv had filed for IPOs.  

SeaWorld shareholders -- not just Blackstone -- may be waiting awhile for any sign of recovery. Bets against the company are climbing, in part because of heightened competition as well as a debt load that's beginning to look outsized because of the company's shrinking earnings before interest, taxes, depreciation and amortization. 

The Shamu Short
The number of shareholders betting against SeaWorld Entertainment recently hit a peak of 22.3 percent
Source: Markit, Bloomberg

Sure, SeaWorld has plans for kick-starting its stalling growth, including extended hours and special events like a "Summer Soak Party" at some of its parks. But with its balance sheet in need of strengthening, potentially through a dividend cut, investors should buckle up: this roller-coaster ride isn't over yet. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Of course, some private equity-backed IPOs turn out great, a recent example being Carlyle's auto-paint business Axalta.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net