Deal focus: PAG goes back to the theme park

PAG had been watching Japanese theme park operator Huis Ten Bosch (HTB) for three years, when at the start of 2022, it began ramping up its pursuit. The result was a 100% acquisition for JPY 100bn (USD 722m) on a locally rare proprietary basis.

The key was seller motivation. HTB was envisioned as an IPO candidate but experienced pandemic-induced declines in visitor numbers, posting operating losses of about JPY 2bn and JPY 2.8bn in 2020 and 2021. Its parent, travel and hospitality operator HIS Group, saw a net profit turn into losses of JPY 25m and JPY 50.1m for the same two years.

“We didn’t know 100% it would eventually become available. But we maintained a dialogue with the seller explaining our interest in whatever percentage they wished and explained how we can add value to the business as a partner,” said Koichi Ito, PAG’s co-head of private equity in Japan.

The patient-yet-aggressive approach is part of a broader strategy. Ito, previously of Credit Suisse, joined PAG in January last year alongside fellow Japan PE co-head Yoichi Tamagawa, previously of Marunouchi Capital, to chase large targets in the market. The local team, across all asset classes, now numbers 140, of whom 90 are investment professionals and investment support staff.

Deals where PAG’s prior investment experience across the region can inform value creation are preferred. In the case of HTB, a 2013 investment in Universal Studios Japan (USJ) helped grease a three-month negotiation process. In another signal of increasing dedication to the market, the deal marked PAG’s first corporate carve-out in Japan.

However, Ito downplayed the notion that the Japan strategy represented a pivot away from his firm’s traditionally China-heavy approach to the region amid geopolitical rumblings. “I don’t think it’s in the context of reducing our exposure in China. It’s more expanding the footprint and expanding the ratio of capital deployed in Japan,” he said.

HTB covers an area the size of Monaco with recreations of idyllic European cities and countryside scenes. There are five directly managed hotels, various shopping venues and children’s attractions, as well as regular events around multimedia exhibits, fireworks programs, and elaborate flower arranging festivals.

Attendance was down from 2.5m in 2019 to 1.3m in 2021. Foreign visitors collapsed to zero during this period but have historically represented only about 7% of the business. Travel difficulties related to a weak yen and ongoing pandemic restrictions regionally are hoped to contribute to increased domestic patronage.

It is unclear to what extent the USJ playbook can be reopened. That deal saw PAG and its fellow investors shift the park’s focus from rollercoasters to character-driven attractions such as The Wizarding World of Harry Potter. The result was more families, which are seen as better repeat customers than thrill-seeking young adults.

USJ’s revenue increased 150% between 2009 and 2016, when it hit USD 1.5bn, while EBITDA rose fourfold to USD 600m and visitor numbers doubled to 14.5m. Comcast NBCUniversal acquired the business for JPY 438bn, picking up 51% in 2015 and the rest in 2017. PAG, Goldman Sachs, MBK Partners, and Owl Creek Asset Management realised handsome exits.

Ito believes the best way to tweak the USJ ploy for HTB is an important unanswered question, noting that it’s still too early to make specific plans around the kinds of attractions that will be added.

Value creation plans are further complicated this time by the pandemic. Under current COVID-19 prevention measures, no one with a family member who has tested positive can enter the park, even if the ticket-buyer tests negative. This hints that the young adult crowd may be a more reliable immediate draw versus families.

But the crucial point is that something must be done. HTB was underinvested under HIS and received no lifelines or revamps during the doldrums of the past two years. In this business model, that doesn’t fly.

“A theme park is a relatively simple business in terms of revenue – it’s the number of visitors times money spent per visitor. And in theme parks, the value decreases if you don’t make investments,” Ito said. “You must keep investing to maintain or increase the value. That is very effective in increasing the number of visitors and the satisfaction of the visitors.”

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• Topics
• North Asia
• Buyouts
• Consumer
• Real estate
• Japan
• PAG
• Travel