Strategizing Fun - Cedar Fair and Paramount: An Analysis of a Marriage of Giants

Editor's note:  Today we introduce a new monthly column by Chris, Strategizing Fun.  Chris' professional life includes teaching Strategic Business Management at the collegiate level, so pairing that with his love of the industry is a match made in heaven.  His column will take a bit of a more academic look at a variety of topics, starting today with the merger that rocked our industry six years ago.

May 22nd, 2006. A date that brought together Cedar Fair and Paramount Parks. Strategically speaking, the merger made complete sense, and its execution a textbook case -- actually, several textbook cases. In this column, I’ll address a few questions that quickly arose on that date – does the acquisition make sense? What changes will be made to the combined company? Was the acquisition a success?

The two cornerstones of strategy are formulation (i.e., coming up with the strategy) and implementation (i.e., actually executing that strategy). Let’s examine the merger by breaking it down into formulation and implementation.

FORMULATION

The first stage of strategy is formulation. In other words, planning the decision out before actually going through with it. Although there are certainly other reasons why the acquisition looked like a good marriage of compatible assets, there’s two reasons that particularly stand out.

1.    MARKET SHARE: Cedar Fair’s top park in 2005 was Knott’s Berry Farm, at number 15 (3.47 million guests). Paramount Parks’ best park was Canada’s Wonderland, at number 14 (3.6 million guests). In the top 25 alone, CF also gained Paramount’s Kings Island, which had 3.3 million guests. The acquisition gave CF two additional top 25 most attended parks.

2.    BARGAINING POWER OF BUYER: Porter’s five forces is a theory used by consultants and academics to explain the forces within an industry that determine how much revenue over the industry average a company should receive. One of those forces is the power of the buyer, which refers to the bargaining power that company can use to its advantage whenever it buys from a supplier.

Consider that there are only so many buyers of roller coasters from any particular designer. When more of those buyers are consolidated together, they are able to (in theory) exert influence over those suppliers to come up with more favorable terms. Better long term pricing is available by bundling multiple purchases and spreading those out over a fixed period. 

Let’s illustrate this by considering an important purchase for any theme park operator – roller coasters. Specifically, let’s consider the number of Bolliger & Mabillard roller coasters purchased by Cedar Fair in the years following the acquisition. Most recently, Leviathan opened in 2012 (Canada’s Wonderland). Before that, Cedar Fair installed Behemoth (2008, Canada’s Wonderland), Diamondback (2009, Kings Island), Intimidator (2010, Carowinds) and Dominator (2008, Kings Dominion), which was actually relocated from a park it acquired from Six Flags, Geauga Lake. But that is a topic for a future column!

In the same 6 year window prior to the merger, Cedar Fair opened Talon (2001, Dorney Park), Silver Bullet (2004, Knott’s Berry Farm), Hydra the Revenge (2005, Dorney Park), and Patriot (2006, Worlds of Fun). Meanwhile, there were no Bolliger & Mabillard roller coasters installed at any of the former Paramount Parks.

Combining the parks together means that Cedar Fair purchased 9 of the 47 Bolliger & Mabillard built in that period – that’s 19% of B&M’s worldwide business during that period! Expecting a similar pattern of buying over the next 12 years for the combined company, you can see how more important Cedar Fair’s business is to B&M. More parks means controlling more buying power, leading to better terms and lower costs.

IMPLEMENTATION

The next stage of strategy is actually implementing that strategy. After the acquisition was completed, there were several strategic decisions made that shifted the focus of both the former Paramount Parks, and the Cedar Fair chain in general. We’ll consider 5 of those shifts in this section.

1. THEMING: It is difficult to argue that Paramount didn’t devote considerable attention to theming their parks. From the extraterrestrial and volcano themed sections of King’s Dominion, to the masterfully themed Star Trek Experience attraction in Las Vegas, Paramount Parks received praise for their theming. In the years after the merger, the argument could be made that Cedar Fair has increased theming in the parks.

Recent roller coaster installations carry more elaborate themes – such as the pair of Intimidator (Carowinds) and Intimidator 305 (Kings Domion), themed loosely around racing legend Dale Earnhardt, Sr., and also the pair of Diamondback (Kings Island) and Maverick (Cedar Point), both western themed roller coasters. In addition to spending attention theming certain roller coasters, the chain rolled out Dinosaurs Alive! to many of their parks. These walk through exhibits include up to 50 animatronic dinosaurs.

2. LICENSING: Licensing is a fascinating part of the Paramount/Cedar Fair acquisition. In the span of 4 seasons, licensing was gradually eliminated from the Paramount Parks. With the Wayne’s World, Nickelodeon, Hannah Barbera, Star Trek, Tomb Raider, Italian Job, and Survivor as some of the brands featured in the Paramount Parks, licensing was more important for the Paramount Parks. On the other hand, Cedar Fair focused on its relationship with the Peanuts characters. For the first season, the parks were operated under their old Paramount brandings (e.g., Paramount’s King’s Island, etc.).

Shortly after the first season under Cedar Fair rule, however, rides were renamed to be more generic – removing references to their former licensed properties. The licensing for the Nickelodeon characters lasted a bit longer than most of the other licenses. It wasn’t until 2009 that the Nickelodeon characters were removed from the kids’ area at King’s Island. Ironically, Survivor The Ride! – based on a show whose tagline is “Outwit, Outplay, Outlast” – did in fact outlast the other licenses. It wasn’t until February of 2011 that the ride was renamed – to Tiki Twirl.

3. ROLLER COASTERS: Certainly, fans of the former Paramount Parks have noticed a number of new roller coasters installed after Cedar Fair’s purchase. Much of the new roller coasters installed at the former Paramount Parks were Bolliger and Mabillard designs. In addition to the ones we discussed earlier, the chain installed Carolina Cobra (2009) at Carowinds, and Intimidator 305 (2011) at Kings Domion. The chain moved Invertigo from California’s Great America to Dorney Park, and it moved X-Flight from Geauga Lake to Kings Island, now called Firehawk. In total, that’s 2 new non-B&M coaster, 1 relocated non-B&M coaster, 4 new B&M coasters and 1 relocated B&M coaster, and a net loss of 1 coaster. Former Paramount Parks saw 7 new coasters from the time that Cedar Fair took the parks over until now. On average, that meant that each Paramount Park saw 1 new roller coaster every 5 years after the acquisition.

4. REDUCED ADMISSION PRICES: One of the more popular decisions was to roll out the “Twilight” admissions policy to the former Paramount parks. Twilight admission is currently $37.99 at Kings Dominion, for example, while a single day adult ticket at the gate costs $59.99. That’s almost a 37% savings!

5. HALLOWEEN EVENT: Both Paramount Parks and Cedar Fair had a tradition of running Halloween events in their parks. Cedar Fair acquired Knott’s Berry Farm, which had been operating a Halloween event since 1973. Paramount Parks implemented their version of a Halloween event called FearFest. The event began at Kings Island in 2000. It was ran as a separate ticketed event the first 3 years.

The acquisition by Cedar Fair generally introduced Cedar Fair’s successful Halloween themed Haunt brand into the former Paramount parks. Cedar Fair was and still is known for operating the largest Halloween event inside a theme park (i.e., Knott’s Halloween Haunt at Knotts Berry Farm). With the acquisition, Cedar Fair sought to duplicate the success it found at Knotts to the former Paramount Parks. Indeed, by 2007, the event was officially “Haunt” at the Paramount parks. At some of the parks (e.g., Canada’s Wonderland), it meant expansion of the number of mazes.

The acquisition has been a great transaction for both the former Paramount Parks, and for the Cedar Fair chain as a whole. In other words, this is a rare textbook example of a merger & acquisition that benefited both the acquired company and the acquiring company. In a future column, we will consider how the chain performed on paper before and after the acquisition. In other words, do the shareholders view the acquisition as favorably as this columnist does?