With another turn of the carousel Revel has hired a new CEO, Greg Dukat. We reached out to Greg to learn if he planned on implementing any changes to Revel’s culture. Namely, Revel has earned a reputation of being pretentious in a rather small industry. Is Greg changing that?
And par for the Revel course, Greg was unresponsive.
No matter, there was something less unexpected that came across our desks.
In 2017 Revel was acquired by one of its earlier investors, Welsh Carson (WCAS), a private equity fund. At the time it was reported that WCAS acquired a “majority” interest in Revel for $65M. We did some math in an earlier post so you can see what $65M may have bought them.
When Revel raised its $100MM Series C from Welsh Carson (WCAS), WCAS purchased 25% of the company. When it broke that WCAS purchased a “majority stake” for a further $65MM, one can do that math pretty simply to arrive at a valuation of the company.
As a most conservative case, assume “majority” means 51% ownership. If WCAS already owned 25%, they would need to acquire 26% to reach a 51% ownership.
So if $65MM = 26%, the company’s value at acquisition was $250MM – less than half of Revel’s last valuation of $540MM.
But that still feels like a lot of money for an asset that might be earning $25MM ARR but could also be losing that amount in cash annually.
Therefore it’s probable that WCAS purchased more than 26% for $65MM. In that case the exit valuation could be $150MM – $200MM. WCAS can justify this – even if it’s less than the aggregate amount they invested – because a righting of the ship could yield a company with $30MM ARR and some EBITDA with a strategic EV/EBITDA multiple if positioned right – all within 12 months. This could give WCAS a cash-on-cash exit of 2x+ over a relatively short period of time.
Then we saw this below graphic from a venture capitalist. This data was curated by Pitchbook. Many times when private companies raise money from accredited investors they file Form D with the SEC. If the terms aren’t favorable, or if the investor doesn’t want the information public, the company can deal with a lot of paperwork to keep this information hidden.
In Revel’s case there was no Form D for the WCAS takeover so we don’t really know how many shares WCAS acquired. But if the below is accurate, it shows a much lower price for Revel.
Referring to our conservative math above, 26% ownership for $65M implied a valuation on Revel of $250M. But buying 26% for only $35M implies a valuation shy of $135M. And remember, it’s possible WCAS purchased more than 26% for that $35M.
If that’s the case then for every dollar Revel was handed it converted that dollar into only $0.82 of value. That’s like if we told you to give us $100 so we can give you back $82. Not exactly an ideal investment.
This drop in valuation means that virtually no employee will have stock options that are in the money
If employees really did get handled this roughly you’d at least expect leadership that could respond to emails.
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