selling boozy strikes turns into roll-up opportunity

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In 2000, a Harvard sociologist published Bowling Alone, about the fraying of Americans’ social bonds. As evidence, the book pointed to a decline in bowling league participation, once a sacred institution of middle-class domestic life.

Bowlero hopes it can get Americans to fill those alleys again — they just need good food, drink and music. The founder-led and private equity-backed company went public through a Spac merger in 2021. Today it has more than 300 locations across the US.

With an enterprise value of $4bn, and a stock price at about $11, it is one of the very few Spac listings that trades above the $10 issuance price.

Bowlero’s high ebitda margins, above 30 per cent, do help. Also, the company is growing quickly through capital intensive dealmaking and location remodels. In the past two years, capital expenditures have exceeded cash flow from operations. Not surprisingly, Bowlero’s own customised free cash flow calculation presents a more favourable picture.

To raise cash, the company recently completed a $439mn sale-leaseback transaction with Vici Properties, best known as a Las Vegas casino landlord.

Eventually, Bowlero hopes to have a large base of locations that are supposed to mint big free cash flow. One similar peer is the high-flying Topgolf, the virtual driving range/entertainment centres owned by Callaway, the golf equipment manufacturer.

Both offer a nightclub-like atmosphere expecting customers to pay up for booze. Sport offers a filler for socialising, a model that has worked post the pandemic.   

Of some 4,000 US bowling alleys, many are independently owned. That leaves a big roll-up opportunity for Bowlero. But the soaring cost of capital squeezes the economics of its earlier investment plans.

Moreover, higher interest rates may damp down any recent sizzle in discretionary consumer spending leaving lanes underutilised. If gathering with friends gets too expensive, Bowlero’s model may prove a gutter ball.