Category: Local Businesses, Mon Valley Miscellany || By

The more I think about the sale of Kennywood, the more I conclude it was inevitable.

If you read a lot of business history, you learn that businesses are like sharks; they either keep swimming and eating, or they die.

If a business can grow by increasing its sales volume, it can remain healthy and independent. But if its market is restricted, it has a hard time boosting its sales, and it's not going to stay healthy for long.

Kennywood is stuck in a declining market that shows no signs of recovery. Western Pennsylvania is full of older citizens who --- demographically speaking --- aren't likely to go to an amusement park very often, and they're past child-bearing age.

Their grandchildren live in Texas and California and Florida, and in case you haven't noticed, those places have pretty nice theme parks of their own. They were not going to visit Pittsburgh to see Kennywood; while Kennywood is wonderful, it's pretty small beans compared to Walt Disney World or Six Flags Over Texas.

That's why Kennywood branched into related businesses, like catering (it purchased White Oak's Stratigos and Baldwin's Bradley House), and into new markets, like New England. It's the only way it could grow its sales.

But if Kennywood is small beans, the parks that it's acquired, such as Lake Compounce, are almost non-existent beans, and they're unlikely to generate the sales volume Kennywood would need to keep growing. And frankly, you've got to cater a lot of weddings to match the revenue you'd need to acquire a really big amusement park.

. . .

That means Kennywood would have to borrow money, but as a small, privately held company, its access to venture capital was poor, and the amount of money it could borrow was limited.

Let's say Kennywood wanted to expand in West Mifflin, on the property it recently acquired adjacent to the park. Adding a new roller coaster, ancillary rides and games, and restroom facilities, not to mention pedestrian and highway improvements, would easily cost $100 million or more.

Few lenders are going to loan that kind of money without having control over how it's spent. If you're going to give up day-to-day control, you might as well sell.

In other words, this sale is a good thing for Kennywood, at least in the short term. Parques Reunidos, the Spanish company buying Kennywood, is worth at least $1.22 billion --- that's what British venture capitalists paid to acquire the firm last year, according to Reuters. It reported 2005 sales of $127 million.

Though Kennywood is a known quantity in Pittsburgh, its name doesn't open doors in London or New York City, and you don't borrow $100 million from Tri-Boro Federal Credit Union. While Parques Reunidos isn't a company in the same league as Disney or Viacom, I'll bet that when they ask Barclays, CIBC, Deutsche Bank or J.P. Morgan Chase to borrow $100 million, those investment houses take them seriously.

Plus, Parques Reunidos will be able to put national marketing power behind Kennywood, Sandcastle and Idlewild.

Parques Reunidos will have the clout to pitch promotional ideas to agencies and tour operators that wouldn't talk to Kennywood alone, because it will be able to package the park with other properties in other parts of the U.S. And Parques Reunidos will be able to swing deals for Kennywood with big vendors that could save it money.

. . .

In the long term, however, I'm not convinced this is a good thing for Kennywood. These large conglomerates have a way of sucking the life out of subsidiaries.

You could see a lot of new investment in Kennywood, but you could just as likely see Parques Reunidos draining Kennywood's profits to subsidize other parts of the parent company, deferring maintenance and allowing the park to depreciate.

It's hard to say what Parques Reunidos will do. The company's current owners took control just this year, and don't have much of a track record. And they're probably carrying a big debt load that has to be paid off.

Even if Parques Reunidos doesn't drain profits away from Kennywood, it will need to maximize its investment by making sure that all of its subsidiaries are sharing operating practices and policies. That enables them to achieve economies of scale.

So you might see Parques Reunidos trying to "corporatize" parks like Kennywood to make its properties as similar as possible. That, unfortunately, would also remove the funky, old-fashioned charm that has made Kennywood a unique Pittsburgh institution.

Within 10 years or so, we might have a profitable, clean, shiny Kennywood that's Kennywood in name only, with a bunch of rides that look like rides in any other theme park, any place else in the world.

. . .

But what was the alternative? With the Pittsburgh market declining, and competition becoming more intense from big, publicly traded companies like Disney, Six Flags and Cedar Fair (parent company of Cedar Point, Kings Island, Knott's Berry Farm and Dorney Park, among others), remaining independent is a tenuous strategy at best.

Kennywood is profitable, but without a lot more muscle behind it, it's hard to say whether it would exist 10 years from now. Idora Park in Youngstown is a faded memory, and Conneaut Lake Park is hanging on by a thread.

And that's why --- barring unforeseen complications --- the Mon-Yough area's best-loved location will soon become a wholly owned subsidiary of a Spanish company controlled by a group of British venture capitalists.

Kennywood couldn't eat. It had to be eaten.

It's just business. It's all perfectly logical.

But hell, I don't have to like it.