Benzinga | Jul 26, 2021 09:01AM EDT

RCI Hospitality Holdings Reports Deal To Buy 11 Adult Nightclubs For $88M

RCI Hospitality Holdings, Inc. (NASDAQ:RICK) today announced the signing of definitive agreements to acquire for $88.0 million 11 adult nightclubs, nine of which are controlled by club entrepreneur Troy Lowrie of Lakewood, CO; six related real estate properties; and associated intellectual property.



The establishments, all fully open, will expand RCI's geographic footprint with five locations in Denver, CO; two near St. Louis, MO; and one each in Indianapolis, IN, Louisville, KY, Raleigh, NC, and Portland, ME.

The collective acquisition will be RCI's largest since its 1995 founding and is anticipated to be accretive in year one. The clubs generated approximately $40 million in revenue and $14 million in adjusted EBITDA in their fiscal year ended December 31, 2019. For the six months ended March 31, 2021, RCI reported revenues of $82.5 million and adjusted EBITDA of $22.3 million. The collective acquisition also is one of the largest in the history of the gentlemen's club industry.

* Consideration: $57.0 million for the 11 clubs, $18.0 million for the six real estate properties, and $13.0 million for the intellectual property, which includes, among other items, the clubs' trademarks, tradenames, service marks, copyrights, websites, internet domain names, source codes, and associated files.

* Payment: $26.0 million in cash; $30.0 million in restricted common stock, valued at $60.00 per share, subject to a lock-up, leak-out agreement; $21.2 million in seller financing at 6.00%; and $10.8 million in commercial real estate bank financing at 5.25%.

* Funding of the $26.0 million payment of cash may be borrowed from third party lenders.

* Valuation is approximately 5x the clubs' 2019 adjusted EBITDA, not including the real estate. 2019 was used for valuation as the clubs were closed for most of 2020 due to the pandemic.

* Closing is subject to transfer of all necessary permits, licenses, and other authorizations; closing on the bank financing; and other customary closing conditions for transactions of this kind. The intent is to close on all 11 clubs as close together in time as possible, but due to the timing of required approvals and transfers of licenses, multiple closing dates are anticipated.

Eric Langan, President and CEO of RCI Hospitality Holdings, Inc., said, "This is exactly the type of sizeable transaction for which we have been searching. All the clubs are well-established and proven cash generators. Troy and his team should be recognized for their accomplishments. We believe the quality of the clubs' licenses and locations enhance the value of the collective acquisition to us."

Mr. Lowrie said, "These clubs have been my father's and my life's work. We're pleased to have realized their value. Their future will now be in the best hands in the industry. We look forward to being significant RCI shareholders and participating in the company's long-term growth."

Consideration

$ in millions ClubsReal EstateIP Total

Cash at closing $20.0$6.0 $26.0

Seller financing$19.0$1.2 $1.0 $21.2

Common stock $18.0 $12.0$30.0

Bank financing $10.8 $10.8

Total $57.0$18.0 $13.0$88.0

The Clubs

Club Name Location URL

Mile High Men's Club Denver, CO* https://milehighmensclub.com/

PT's Showclub Centerfold Denver, CO* https://ptscenterfold.com/

The Diamond Cabaret DenverDenver, CO https://thediamondcabaret.com/

PT's Showclub Denver Denver, CO* https://ptsshowclubdenver.com/

La Boheme Gentlemen's Denver, CO https://labohemegc.com/ Cabaret

PT's Showclub IndianapolisIndianapolis, IN&# https://ptsshowclubindy.com/ x2A;

PT's Showclub Louisville Louisville, KY&# https:// x2A; ptsshowclublouisville.com/

PT's Showclub Portland Portland, ME* https:// ptsshowclubportland.com/

The Men's Club of Raleigh Raleigh, NC https://mensclubraleigh.com/

The Diamond Cabaret St Sauget, IL https:// Louis diamondcabaretstlouis.com/

Country Rock Cabaret Sauget, IL https://countryrockcabaret.com /

* Real estate being acquired.