Hollywood Bowl hits a strike with its float but why are its bosses so keen to sell up?

Managers are cashing in by selling 40 per cent of their shares in the fast growing business. If its prospects are as bright as they’re saying, you’d think they’d want to hold on to them

Ten pin bowling has become a hot property in the leisure market

Hollywood Bowl has hit a strike. Britain’s biggest ten pin bowling operator will be valued at £240m, when its shares hit the market as a result of private equity owner Electra selling most of its stake.

Electra is not alone in cashing in. Hollywood’s bosses have also bowled perfect games, at least where their bank balances are concerned. They’re collectively selling 40 per cent of their shares.

Here’s why that’s a problem. First the background: the company has flourished under Electra. The private equity firm bought it for £91m two years ago. It, and the chain’s management will make £181.3m between them, based on the 160p a share price.

Quite a return, but the company posted £55m in sales for the six months to 31 March, an 11 per cent rise before any contribution from new openings is taken into account. Adjusted profits also increased by more than half. So perhaps that shouldn't come as too big of a surprise.

Ten-pin bowling is undergoing a renaissance, and is currently one of the hottest parts of the leisure sector. New investors – largely institutions that look after pensions and savings for the likes of you and me – are promised more expansion, and more stellar returns like those above. Hollywood has 54 outlets, but is scouting 20 more sites. It reckons it can add at least two new outlets a year, and perhaps more, with a long term ambition of having 100.

Why, then, is the company’s management selling any shares at all? The bosses of British companies are never knowingly underpaid, so they shouldn’t lack for funds. If they need cash for, I don’t know, second homes, or the fees charged by fancy schools, or flash new sports cars, they could always borrow against their holdings. Their bankers would no doubt be only too happy to arrange something for them.

There are, obviously, sometimes reasons why it is a good idea for the founders and bosses of companies to sell into flotations. For example, where a founder, or a family, feels it’s time to go public so their baby can grow up.

In these situations it’s often better for them not to be left holding too big a stake after going public, otherwise you risk a situation where a single big shareholder can ride roughshod over the new backers. This is what happened at Sports Direct, and some of the natural resources outfits that have listed on the London Stock Exchange in recent years, with decidedly mixed results.

Another good reason for managers to sell is where there is heavy demand for the stock of a hot company. Hollywood could be considered one of those. However, Electra was expecting to sell about half of its stake, only to bump it up to 80 per cent to cope with the demand. So, it wasn’t essential for the bosses to join the party.

I’ve no axe to grind with Electra. It has done what private equity firms do. It bought a business, tarted it up, bulked it up, made its return and then sold the majority of its shares to public investors, freeing resources for it to move on to the next deal.

It appears to have left plenty in the tank for new shareholders so everyone will be happy, at least if things go to plan and the company’s bosses do their jobs.

So again, why aren’t those bosses backing themselves? Why aren’t they hanging on to all their shares to maximise their exposure to the bigger returns the new investors are promised. Are they that allergic to money?

It’s true that they’re keeping 60 per cent of their holdings, so they’ve got plenty of money at risk. But if your pension savings are being used to back a business, wouldn’t you want the management to keep all their shares? To be willing to stick their necks and their fortunes on the line as they help you make yours? I know I would.