Escape Hunt plc (LON:ESC) is the topic of conversation when Zeus Capital’s Technology Analyst Bob Liao caught up with DirectorsTalk for an exclusive interview.
Q1: ESC announced the acquisition of its Middle East franchise partner, can you give us a brief overview of the transaction?
A1: The franchise partner is called Escape Hunt Entertainment and they own and operate an escape room site in Dubai and they also have a sub franchise with four sites in other parts of the Middle East.
The operation that they’re acquiring, in our view, offers some very high potential returns at modest cost and relatively low risk to the company. The transaction also pushes the company ahead of some our forecasts.
Q2: Can you give us a view on the acquisition’s return potential and the risks involved?
A2: The potential returns from the site, we believe, are very strong, the company expects to run the site on similar operating metrics to the UK which targets a margin around the 30% range in terms of EBITDA margin.
So, considering the modest consideration that the company is paying for the franchise, if you get full payback after a small number of months at target capacity so if all things go as planned, after the reopening of the site, then we’re looking at a very, very quick return.
Also, the risks of the acquisition are limited, partially due to some of the attractive lease terms that they’ve been able to renegotiate and the leases that they have now are only linked to revenue payments so that’s something that allowed them a lot more flexibility.
So, overall, I’d say yes, the risk return balance appears to be highly attractive for this acquisition.
Q3: Obviously, they have plans for roll out, how does this acquisition affect the plans for Escape Hunt?
A3: The acquisition accelerates the rollout, in particular, the acquisition pushes the company ahead of our estimates.
The site adds to the 11 sites that the company currently has so they’re looking at 12 sites in operation by the end of October, that’s ahead of our expectation of 11 sites. The company could reach 14 sites by the end of December under ideal circumstances which would, again, be ahead of our estimates of 13 sites by the end of the year.
So, the company appears really well positioned for a strong rebound coming out of lockdown.