How to value a theme park business – a complete guide

Introduction

The theme park industry has seen tremendous growth in recent years. According to a report by the International Association of Amusement Parks and Attractions, theme parks around the world received 1.2 billion visitors in 2018, generating more than billion in revenue. With the growing popularity of theme parks, it’s no surprise that more entrepreneurs are investing in this business. If you are one of them, this blog post will guide you on how to value a theme park business. We’ll cover the valuation considerations and methods you need to know to make informed decisions. Continue reading to learn more.

Considerations for Evaluating a Theme Park Business

When evaluating a theme park business, there are several factors to consider. These include:

  • Theme Park Location: The location of the theme park is an important factor in its evaluation. A park located in a popular tourist destination will be more valuable than one in an unfamiliar location.
  • Historical Financial Performance: The financial performance of the theme park over time is an important consideration. It provides insight into the revenue and profitability of the park.
  • Market Trends: Understanding market trends in the theme park industry is crucial. Trends such as the rise of immersive experiences and virtual reality can impact the value of a theme park.
  • Company management: The expertise and experience of a management team can affect the value of a theme park. A well-run theme park is probably worth more than one with bad management.

Valuation Methods for Theme Park Businesses

There are several valuation methods to consider when valuing a theme park business. These include:

  • Company Comparable Analysis: This method involves analyzing the financial performance of other theme parks with similar characteristics to your company.
  • Discounted Cash Flow Analysis: This method takes into account the future cash flows of the theme park and estimates the present value of those future cash flows.
  • Replacement Cost Method: This method estimates the cost of replacing a theme park’s assets with similar ones.
  • Revenue Capitalization Method: This method is based on the expected future profits of the theme park and the expected return on investment for the buyer.
  • Market Multiple Method: This method compares the financial performance of the theme park to that of other publicly traded theme parks.

Each of these methods has its strengths and weaknesses. Experienced professionals will use a combination of these methods to arrive at a fair and reasonable valuation for a theme park business.

Comparison of valuation methods

When it comes to valuing a theme park business, there are several methods businesses can use. Some of the more popular methods are:

Evaluation method Benefits The inconvenients
Comparable business analysis
  • Easy to understand and perform
  • Relies on public information
  • Helps compare performance to similar companies

  • Difficult to find comparable companies
  • May disregard differences in business model
  • Market fluctuations can skew the data

Discounted Cash Flow Analysis
  • Consider future cash flows
  • Accounts for time value of money
  • Flexible and can be adjusted for various scenarios

  • Based on accurate forecasts
  • Requires assumptions about future performance
  • Difficult to adjust for unforeseen events

Replacement cost method
  • Tangible Asset Accounts
  • Helps determine potential resale value
  • Can be useful for distressed or bankrupt businesses

  • Does not consider intangible assets or brand value
  • May overvalue or undervalue depending on current market conditions
  • May not reflect current cost of assets

Income capitalization method
  • Useful for businesses with consistent revenue streams
  • Considers the potential for future profits
  • May take into account capital appreciation

  • Can be difficult to determine the appropriate cap rate
  • Does not take into account temporary fluctuations or changes in performance
  • Requires accurate forecasting

Market multiples method
  • Relies on publicly available information
  • Useful for businesses with a similar competitive landscape
  • Easy to adjust for differences in size, location or business scope

  • May disregard differences in business model or intangibles
  • Difficult to find comparable companies
  • Market fluctuations can skew the data

Considerations

Theme park location

The location of the theme park is perhaps the most important factor to consider when valuing a theme park business. Location can be a key driver of footfall and revenue. Theme parks in popular tourist destinations, for example, tend to attract large crowds and generate high revenues compared to those in less popular destinations. Additionally, the location of the theme park can also affect the value of its assets.

Advice:

  • Consider proximity to major tourist attractions such as airports, hotels, and landmarks
  • Research surrounding demographics to determine potential market size
  • Assess location accessibility and availability of transportation options

Once you have considered the location, you can proceed with other methods of theme park valuation to determine the overall value of the business. Below are some other critical factors you can use when evaluating a theme park business.

Key performance indicators for theme parks

Key Performance Indicators (KPIs) are measures that help determine the effectiveness of a business. Theme parks have unique performance metrics that can vary depending on the size and location of the business. Some of the common KPIs for theme parks include:

  • Presence: the total number of theme park visitors during a specific period
  • Customer Satisfaction: Measures the level of customer satisfaction with the overall experience
  • Food and Merchandise Sales: Shows the level of income generated from food and merchandise sales
  • Operational costs: measures expenses associated with running the park, including staff salaries, maintenance, and utilities

Advice:

  • Compare KPIs with industry benchmarks to determine if the theme park is performing above or below average
  • Use KPIs to identify areas of improvement to increase revenue and overall value

Industry Benchmarks for Theme Park Businesses

Industry benchmarks are a useful tool in determining the overall value of a theme park business. Benchmarks provide a baseline against which to compare the performance of the theme park with its competitors. Some of the key references to consider when valuing a theme park business include:

  • Revenue per available room (RevPAR): measures the revenue generated by each room in the park
  • Revenue per guest (RPG): Measures revenue generated per guest, including admission, food, and merchandise sales
  • Operating Expenses Per Available Room (OE PAR): Measures operating expenses per available room in the fleet

Advice:

  • Use industry benchmarks to compare theme park performance with competitors
  • Analyze gaps between theme park performance and industry benchmarks to identify areas for improvement

Theme Park Revenue Strots

Theme parks have several revenue streams that contribute to the overall value of the business. It is crucial to understand the sources of revenue and their impact on the value of the park. Some of the common revenue sources for theme parks include:

  • Admissions: includes ticket prices and annual passes
  • Food and beverages: includes restaurants, snacks, and beverage sales
  • Merchandise: includes souvenir sales and retail stores
  • Other: includes ancillary revenue streams such as sponsorships, rentals, and events

Advice:

  • Identify the contribution of each revenue stream to the overall value of the business
  • Analyze the growth potential of each revenue stream to determine the long-term value of the business

Theme Park Asset Valuation

Theme park assets can have a significant impact on the overall value of the business. Assets include physical properties, equipment, and intellectual properties such as copyrights and trademarks. Some key areas to consider when assessing the value of theme park assets include:

  • Real estate value: assess the value of the physical properties of the park and land assets
  • Equipment and inventory: determine

    Historical financial performance

    When it comes to evaluating a theme park business, historical financial performance is an essential factor to consider. The company’s past financial performance can provide insight into future projections and profitability.

    One of the main theme park performance indicators is attendance. Review historical park attendance to analyze if there is a trend of increasing or decreasing attendance. If attendance is dropping, review the reasons why and address them in the appraisal report.

    Industry benchmarks for theme park companies should also be analyzed. Compare the financial performance of the theme park business to other theme parks of similar size. This comparison will provide insight into how the theme park business is performing against the industry.

    Take a detailed look at the theme park’s revenue streams to see which areas have worked well historically. Identify areas of growth opportunity and potential challenges the business may face.

    Asset valuation is also an essential part of theme park business valuation. Analyze the value of land, rides, buildings and equipment, and how they relate to the overall value of the business.

    Market analysis should be undertaken to examine the economic environment in which the theme park operates. Look at the location of the theme park, surrounding demographics, public transport links, hotel infrastructure and surrounding attractions. Are there any new developments in the area that will affect the growth potential of the theme park?

    Investment analysis for theme parks should include historical financial data, projections, and cash flow analysis. It is important to understand the capital expenditures required to maintain and grow the business. Additionally, an analysis of potential returns on investment will provide insight into whether a particular park is worth the investment.

    Theme park financial modeling provides a detailed explanation of the park’s performance. A discounted cash flow analysis is an analytical method used to derive the net present value of a fleet.

    Before beginning the theme park evaluation process, feasibility studies must be completed. It will give you an overview of the general feasibility and how to solve the main problems in the development phase of the evaluation model.

    Advice:

    • Analyze historical fleet numbers to identify trends.
    • Perform detailed revenue stream analysis to identify growth opportunities and upcoming challenges.
    • Compare the theme park to other industry benchmark parks.
    • Complete feasibility studies prior to commencing theme park appraisal to assess the widespread feasibility of the operation.
    • Understand the economic environment and location of the park relative to surrounding infrastructure and attractions.

    Market trends

    When it comes to evaluating a theme park business, various factors should be considered, including market trends. Here are some key things to consider when it comes to market trends.

    • Theme Park Valuation Methods: Theme park valuation is an important aspect to consider when buying or selling a theme park business. DCF (discounted cash flow), revenue multiple, EBITDA multiple, and cost approach are some of the commonly used valuation methods.
    • Key Performance Indicators for Theme Parks: Key Performance Indicators or KPIs can help measure how a theme park is doing. Commonly used KPIs include guest satisfaction, cap spend, attendance, revenue per available room, and more.
    • Industry Benchmarks for Theme Park Companies: Knowing industry benchmarks is crucial when evaluating theme park performance. Information such as net income and guest spending can be compared to industry averages to determine a park’s profitability.
    • Theme Park Revenue Streams: Revenue streams are critical when valuing a theme park business. Examples of revenue sources include entrance fees, merchandise sales, food and beverage sales, corporate events, and sponsorships.
    • Theme Park Asset Valuation: Assets such as land, buildings, attractions, and amenities are essential to the valuation of a theme park.
    • Theme Park Market Analysis: Performing a thorough market analysis can help assess theme park competition, changes in customer interests, and changes in the business environment.
    • Theme Park Investment Analysis: Analyzing potential investments in a theme park business requires careful risk assessment, ROI and NPV calculations, etc.
    • Theme Park Financial Modeling: Modeling a theme park business requires data on revenues, expenses, taxes, capital costs, potential financing options, and more.
    • Theme Park Feasibility Studies: A feasibility study aims to assess the practicality of investing in a specific business. The study will consider factors such as consumer demand, market competition, expected returns on investment and profitability.
    • Theme Park Business Evaluation: Inspecting a theme park business’s assets, finances, and performance indicators can aid in a more comprehensive theme park business evaluation.

    Tips for Evaluating a Theme Park Business

    • Understand local market trends and competition in the region.
    • Take a close look at the theme park’s finances and sources of income.
    • Look closely at theme park assets and equipment to determine overall value.
    • Consider hiring a professional valuation expert to help you with the process.
    • Do not rely solely on an evaluation method. It is best to use a combination of methods to arrive at an accurate assessment.

    Business management

    When valuing a theme park business, the first factor that must be considered is the management of the business. It is essential to analyze the experience, background and expertise of the management team in the industry. An experienced management team with a proven track record of success in the theme park industry is an asset that can have a significant impact on the future performance and valuation of the business.

    Advice:

    • Assess the strengths and weaknesses of the current management team.
    • Look at the management team’s experience in developing and operating theme parks.
    • Analyze the ability of the management team to adapt to market changes and implement new strategies.

    Theme Park Rating Methods

    There are different methods to value a theme park business, but the most common approach is to use the discounted cash flow method. This method takes into account the company’s future cash flows and discounts them to present value, using a discount rate that reflects the risk and uncertainty of the investment.

    Another method that can be used is the comparative method, which compares the theme park business to other similar businesses that have been sold or are publicly traded.

    Advice:

    • Consider using multiple valuation methods for a more accurate estimate.
    • Be aware of the assumptions used in the valuation methods and ensure that they are reasonable and based on reliable data.
    • Consider hiring a professional valuation expert to perform a full valuation analysis.

    Key performance indicators for theme parks

    When analyzing the performance of a theme park, it is important to look at key performance indicators (KPIs) which provide insight into the financial health and operational efficiency of the business. Some of the most common KPIs used in the theme park industry include attendance, revenue per visitor, average spend per visitor, and operating margins.

    Advice:

    • Regularly monitor and analyze KPIs to identify trends and areas for improvement.
    • Compare KPIs to industry benchmarks for an objective assessment of business performance.
    • Consider implementing strategies to improve KPIs that are below industry standards.

    Industry Benchmarks for Theme Park Businesses

    Industry benchmarks provide a yardstick for comparing a theme park company’s performance to the rest of the industry. Some of the key benchmarks used in the theme park industry include attendance, revenue per visitor, operating expense as a percentage of revenue, and capital expenditure as a percentage of revenue.

    Advice:

    • Regularly monitor industry benchmarks to stay competitive and identify areas for improvement.
    • Compare company performance to industry benchmarks when valuing the company.
    • Consider implementing best practices used by top performing theme parks to improve business performance.

    Theme Park Revenue Stots

    Theme parks typically generate revenue from several sources, including admission fees, food and beverage sales, merchandise sales, and sponsorship offers. It is essential to analyze the contribution of each revenue stream to the overall revenue and profitability of the business.

    Advice:

    • Regularly monitor and analyze revenue streams to identify trends and areas for improvement.
    • Maximize revenue by identifying potential opportunities for new revenue streams.
    • Reduce over-reliance on one source of income to minimize the impact of external factors such as changes in the economy or weather.

    Theme Park Asset Valuation

    Theme parks have a large asset base, including land, buildings, rides, and other attractions. It is critical to value these assets appropriately when valuing the theme park business.

    Asset valuation can be done using several methods, including the replacement cost method, the revenue capitalization method, and the sales comparison method.

    Advice:

    • Update the asset valuation regularly to reflect any changes in asset value.

      Assessment methods

      Comparable business analysis

      Comparable business analysis is a traditional valuation method used to determine the value of a theme park business. It involves analyzing the financial metrics of similar companies in the same industry to estimate the value of the company in question.

      Benefits:

      • Provides a clear picture of the company’s value.
      • Simple and easy to understand.
      • Can be used as a reference for future comparisons.

      The inconvenients:

      • Requires a significant amount of data and research to identify comparable companies.
      • Difficult to obtain reliable data on private companies in the industry.
      • Highly dependent on assumptions made by analyst.

      For example, if the target company is a regional theme park business, the analyst would identify other regional theme parks that are similar in size, location, and target audience. Financial metrics such as revenue, EBITDA, and profit margins would be compared to estimate the value of the target company.

      However, it is important for the analyst to carefully select comparable companies and accommodate any differences between the target company and the comparable companies to ensure accurate results.

      Discounted Cash Flow Analysis

      When valuing a theme park business, a common method employed is the discounted cash flow (DCF) analysis. This method calculates the present value of future cash flows, given the time value of money by discounting the projected cash flows to their present values.

      Benefits

      • Provides a comprehensive and detailed analysis of a theme park company’s financial performance, which can be useful for investors and stakeholders.
      • DCF analysis takes into account various factors such as inflation, risk, and economic trends, which can impact a theme park’s future cash flow.
      • It allows an investor to more accurately compare the value of a theme park business with other types of investments and industries.

      The inconvenients

      • Forecasting future cash flow can be difficult, especially in an unpredictable industry like the theme park business.
      • The accuracy of a DCF valuation is highly dependent on the assumptions made in the financial modeling process.
      • The result may be sensitive to certain variables such as the discount rate used.

      An example of using DCF analysis for a theme park business to forecast future cash flows for the next five to ten years and value the total added to its net present value using an appropriate discount rate . The calculations take into account various factors such as ticket prices, attendance projections, operational expenses and capital expenditures. The results will provide an estimated value of the theme park activity.

      Replacement cost method

      The replacement cost method is one of the most common methods used to value theme park businesses. This involves determining the replacement cost of all park operating assets, which includes land, buildings, rides and other attractions. This method takes into account the current market value of each asset and estimates the cost of replacing each asset with a new one.

      Benefits:

      • It provides a complete view of theme park assets and their value.
      • It is useful when there is no market data available for comparison.
      • It takes into account the condition and age of the assets, thus providing an accurate value.

      The inconvenients:

      • The method can be time-consuming and expensive to undertake, especially for larger parks.
      • It may not take into account intangible assets such as reputation and goodwill, which can significantly affect the value of a theme park.
      • The replacement cost method may not reflect the current market value of assets due to changes in technology and other factors.

      For example, imagine a theme park with an estimated value of million, which consists of 25 acres of land, 20 rides, and several buildings. Using the replacement cost method, the total value of the park would be calculated as follows:

      • The land is valued at million per acre, thus totaling million.
      • The rides are valued at million each, totaling million.
      • The buildings are valued at million each, totaling million.
      • The total value of the theme park is therefore million ( million for the land + million for the rides + million for the buildings).

      Overall, the replacement cost method is a useful tool for determining the value of a theme park, along with other valuation methods and KPIs. It takes into account important factors such as market analysis, revenue sources, and financial modeling, ultimately providing a comprehensive view of a theme park’s potential value.

      Income capitalization method

      The revenue capitalization method is one of the most common and reliable methods for valuing a theme park business. This method includes evaluating a theme park’s cash flows and determining a present value by applying capitalization rates. Many experts prefer this method because it considers the future cash flow generated by the theme park as revenue, which makes the valuation process more objective. However, there are pros and cons to using this method that should be considered:

      Benefits:

      • Reliable due to its focus on theme park profitability.
      • Considers the future potential of the theme park.
      • Easy to understand, even for those unfamiliar with finance.

      The inconvenients:

      • Suppose past performance predicts future performance.
      • Requires an understanding of financial modeling.
      • Depending on the accuracy of the financial projections.

      An example of using this method would be to value a theme park that generates million in revenue per year. After deducting all operating expenses, you determine that the park has a net operating income of .5 million. If you apply a capitalization rate of 10%, you can determine that the current value of the park is million. The accuracy of this method depends on the financial projections used to determine cash flows and capitalization rates. Therefore, it is recommended that an experienced financial advisor be consulted to ensure that the method is used accurately and appropriately to value a theme park business.

      Market multiples method

      The market multiples method, also known as comparable company analysis, is a valuation approach that compares a theme park company to similar companies in the industry. The multiples obtained from these comparable businesses are then used to estimate the value of the theme park business.

      Benefits:

      • Relatively easy to understand and implement
      • Uses market data which can make it more accurate
      • Can provide insight into the current market value of the theme park

      The inconvenients:

      • Quality of data used to derive multiples may vary
      • Multiples used may not accurately reflect the specific characteristics of the theme park being valued
      • Considers only publicly traded companies and may not reflect smaller, private theme parks

      For example, if there are two publicly traded companies that own and operate theme parks similar to the one being valued, we can look at their price/earnings (P/E) ratios. If one company has a P/E ratio of 15 and the other has a ratio of 20, we assume the rated theme park would have a P/E ratio somewhere in that range. The P/E ratio can then be used to estimate the value of the business.

      When using the market multiples method, it is important to consider industry benchmarks for theme park companies to ensure that the comparable companies used are a good match. It is also important to perform a thorough analysis of the theme park’s financial services and operations to determine how well it compares to the comparable companies used.

      Conclusion

      Valuing a theme park business requires careful analysis of various factors and the use of different valuation methods. Assessing the location, financial performance, market trends and management team of the business are critical considerations when valuing the business.

      The use of a combination of methods, such as comparable business analysis, discounted cash flow analysis, replacement cost method, revenue capitalization method and multiple of market, can help arrive at a fair and reasonable valuation.

      It is essential to seek experienced advice from professionals to conduct a comprehensive assessment and make informed decisions when investing in a theme park business.

READ:  Unlock the potential of the van delivery business with key performance indicators