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Could the recent regional theme park mergers result in future competitive collaborations?

I must confess the recent announcement of the Herschend organization purchasing Palace Entertainment, and the integration of their properties into their existing operating portfolio, has made me lay awake thinking about the future of the Theme Park Industry particularly as it relates to additional merger opportunities (if any exist).

It also makes me wonder, as inconceivable as it may currently seem, whether it is possible in the future that we could see regional leisure companies that currently compete, begin to instead establish cross company park promotions? Could they perhaps create cooperative, reciprocal programs that provide deeper penetration of each other’s markets, thus increasing each other’s attendance and revenues? Is this a viable concept for operators to consider in the future? At this point I’m not sure, but I cannot rule it out.

As markets and parks increasingly overlap, I can foresee a shift where competitors, instead of desecrating a market through extreme discounting, collaborate through cross pollination programs. This type of initiative could enhance overall market value, benefiting all properties by offering better price-value relationships.

Map as overlaid by ITPS represents how Herschend and Six Flags have captured the North American market. Note - each pin represents one market; a market may contain multiple individual operations.

This may be extreme thinking at this point, particularly with two major mergers just occurring in the last 12 months. However, consider past examples of industry rivals joining forces:

Apple & Microsoft (1997): In the late 1990s, Apple was struggling financially and Microsoft was facing antitrust scrutiny. Instead of continuing their rivalry, Apple received a $150 million investment from Microsoft, ensuring Office remained available for Mac. Both companies ultimately benefited.

Amazon & Best Buy (2018): Instead of competing in the smart TV market, Amazon partnered with Best Buy to sell Fire TV-powered TVs, leveraging Best Buy’s retail strength and generating higher revenues for each company.

Nintendo & Sega (2000s): In the 1990s, Nintendo and Sega were bitter gaming rivals, aggressively competing in the same markets. In the early 2000s, Sega instead exited the console market, and these two companies began a partnership that proved profitable for both.

These examples in the world of tech companies prove these types of collaborations can work!

Let’s look at our industry. As of 2024, the U.S.A. amusement parks market reached an estimated $29.9 billion, reflecting a compound annual growth rate (CAGR) of 4.4% over the past five years. This growth underscores the industry's resilience and its capacity to adapt to changing consumer preferences. And our industry certainly has changed and matured in the last few decades. After years of growth, we reached saturation of “greenfield theme park” sites in 1982, with the exception of Nashville, Tennessee and Houston, Texas - both of whom had major theme parks that closed for real-estate sales.

Fast forward to July 2024, when Cedar Fair and Six Flags completed an $8 billion merger, creating the largest amusement park operator in the U.S.A. This merger combined 42 amusement and water parks across 17 states, aiming to enhance financial flexibility and accelerate investments in new attractions and technologies. These blended parks stretch across America….north to south, and east to west. Today, we find a major theme park located within a two-and one-half hour drive of every major metropolitan city in the U.S.A.

And now, Herschend, renowned for operating Dollywood, has acquired Palace Entertainment's U.S. properties from Parques Reunidos. This acquisition aligns nicely with Herschend's strategic expansion in family entertainment and hospitality, allowing Parques Reunidos to focus on its core European market.

These mergers and acquisitions are poised to have several implications for the industry's trajectory. The Herschend/Palace consolidation enables them to pool resources, leading to improved attractions, diversified entertainment options, and upgraded facilities, which should enrich the overall combined guest experiences. It has been proven where larger entities can achieve economies of scale, optimizing operations, reducing costs, and increasing profitability, which can be reinvested into park enhancements. Six Flags is working on this now.

Despite recent consolidations, we believe opportunities remain for additional mergers and acquisitions. Solid independent parks remain like Hersheypark (Pennsylvania) and Holiday World (Indiana), Santa Cruz Beach Boardwalk (California), and Lagoon (Salt Lake City), all of whom have established regional prominence. It is possible that in the future, they could be attractive targets for these larger operators who continue seeking to expand their portfolios. There are a few emerging smaller operators, which have a history of acquiring and managing smaller regional parks. These players might consider merging with or acquiring entities being spun off by Six Flags and Herschend to strengthen their market position. We know Six Flags is currently studying which properties they are going to market. This could also occur with Herschend once they have finalized their deal and stabilized their portfolio. Again, we shall see.

There are a few key things to consider and think about as we continue this evolution of industry mergers. As mentioned at the outset, the concept of co-promotion among regional park operators presents a viable strategy to enhance market reach and customer engagement. Collaborative marketing campaigns can leverage combined customer bases, offering bundled ticket packages or cross-promotional discounts to encourage visitors to explore multiple parks. Implementing reciprocal agreements for season pass holders from company to company can add value to memberships, fostering customer loyalty and increasing visitation across partnered parks. At a superior conjoined level, co-developing overlapping themed events or attractions could very well capitalize on shared resources and creative synergies, providing uniquely dovetailed experiences that draw diverse audiences.

Another rationale for co-promotion among regional operators is cost efficiency. Sharing marketing expenses can reduce individual costs while amplifying outreach efforts, both reach and frequency. We have also seen enhanced value propositions through co-promotion, which can boost customer satisfaction and repeat visitation the life’s blood of our business. Extreme collaborative efforts can also differentiate the participating parks from each other, offering unique experiences that are unavailable elsewhere than the sharing parks.

Now I know some of this seems far-fetched, but had I told you 5 years ago Cedar Fair would be running Six Flags, many of you would have asked, what are you smoking! Such a merger would raise challenges such as aligning brand identities (doable), revenue-sharing agreements (technically possible), and logistical coordination that must be addressed to ensure successful partnerships (more of learning how the other guy does it). This is currently in play at Six Flags and soon to begin at Herschend (again doable).

So, what am I throwing out here? Simply, the U.S.A. theme park industry is maturing (70+ years). It is marked by strategic consolidations that aim to enhance guest experiences and operational efficiencies, while growing attendance and revenues. Though opportunities for further mergers are slight, but exist, it is not unthinkable that innovative collaboration strategies, including co-promotion could evolve among competitive regional operators, therefore offering promising avenues for long-term future industry growth. Such collaborative efforts could also lead to enriched customer experiences, pointing to decades of continuous industry vitality in a rapidly evolving entertainment landscape. A current landscape none of us envisioned 50 years ago!

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