Private equity firm Z Capital Partners and its affiliates, which currently own a 41 percent stake in Las Vegas, Nevada-based casino gaming operator Affinity Gaming LLC, agreed to acquire Affinity’s remaining shares for $17.35 per share in cash, valuing the company at $580 million. Z Capital said it has received a $465 million debt financing commitment from Citizens Bank NA.
Affinity’s casino operations consist of 11 casinos, five of which are located in Nevada, three in Colorado, two in Missouri and one in Iowa, with 3400 employees. Founded in 2010, and formerly known as Herbst Gaming, Affinity offers accessible, value-oriented casino entertainment in a welcoming and casual atmosphere.
Affinity traces it roots to Ed Herbst, who in 1959 founded the Terrible Herbst Oil Company, which owns gasoline stations throughout Nevada, California, Utah and Arizona. The stations bear the logo of a “terrible” cowboy wearing a handlebar mustache and black hat. In 1987, Herbst Gaming was formed by the founder’s grandchildren, brothers Ed, Troy and Tim Herbst, to service the gas station’s slot machines.
In March 2009, after a series of ups and downs, including various mergers, acquisitions and divestments, Herbst filed a pre-arranged Chapter 11 bankruptcy petition, splitting its operations into two holding companies in order to keep its slot routes, while giving up ownership of its casinos to its creditors. The company emerged from Chapter 11 on December 31, 2010 under new ownership, and changed its name to Affinity Gaming LLC in May 2011.
“We are pleased to enter into the agreement to purchase Affinity and transition from the largest shareholder to sole controlling shareholder,” said James Zenni, president and chief executive of Z Capital and a member of Affinity’s board of directors since 2014.
The deal is expected to close in the first quarter of 2017, subject to approval by Affinity shareholders, regulatory approvals, including by gaming regulators in the four states in which Affinity is licensed, expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and other customary closing conditions.
For the quarter ended June 30, 2016, Affinity Gaming reported net revenue of $94.7 million, which was 6.8% lower than net revenue of $101.5 million for the second quarter of 2015. Operating income for the second quarter of 2016 was $11.8 million, an increase of 17.3% from $10.1 million for the second quarter of 2015. Adjusted EBITDA for the quarter ended June 30, 2016 was $19.4 million, an increase of 10.1% from $17.6 million for the second quarter of 2015. Adjusted EBITDA margins for the second quarter of 2016 increased to 20.5%, an improvement of approximately 320 basis points when compared to the Adjusted EBITDA margin for the second quarter of 2015.
Z Capital has previously made several attempts to acquire the entire company, but its efforts failed to come to fruition.
As of August 22, 2016, shareholders representing approximately 69% of Affinity’s outstanding shares have entered into voting agreements in support of the transaction. Affinity’s board of directors approved the deal and recommended that the company’s stockholders vote to approve the transaction.
Sidley Austin LLP served as Z Capital’s legal advisor. Deutsche Bank Securities Inc. as acted as the Special Committee’s financial advisor and Morrison & Foerster LLP served as its legal advisor.
Z Capital Partners LLC is the private equity management arm of Z Capital Group LLC, a leading global alternative investment manager with approximately $2.2 billion of assets under management with offices in New York City, Lake Forest, Ill., and Zurich, Switzerland. Z Capital manages both opportunistic, value-oriented private equity and credit funds. The firm’s portfolio includes Carillon Miami Beach, Golden Gaming, Mesquite Gaming, Clift San Francisco, Waldhaus Flims Mountain Resort & Spa, Mrs. Fields cookies, Chevy’s and El Torito restaurant chains, and many other companies.