Leading Disney Ride Manufacturer Goes Up For Sale

The manufacturer of the ride systems which power many of Disney's most beloved theme park attractions has been put up for sale after over-spending in a bid to build the world's most cutting-edge roller coaster.

Unbeknownst to many guests, theme park giants like Disney and Universal Studios don't tend to build their own attractions. Instead they rely on specialist engineering firms to make rides to their specification or they buy off-the-shelf systems so that their designers can give them a magic touch. This trend dates back to the early days of the theme park industry when Walt Disney himself bought six ride mechanisms from California-based manufacturer Arrow Development so that they could be part of the opening day line-up for Disneyland in 1955.

Arrow made rides for small-scale amusement parks but they were given a sparkle by Disney's design wizards who are known as Imagineers due to their expertise in imaginative engineering projects. Cabins shaped like cartoon elephants were attached to the arms of Arrow's spinning aerial carousel to give guests the impression that they are flying with Dumbo whilst its slow-moving indoor ride cars were immersed in sets themed to Snow White and The Wind in the Willows. The six rides have stood the test of time and are still operating at Disneyland to this day.

Arrow has changed hands several times since the park opened and other companies have taken over its spot as Disney's preferred partners. In two weeks the Magic Kingdom at Walt Disney World will officially swing the doors open to Tron Lightcycle Run, a coaster made by Dutch company Vekoma which has ride cars resembling motorcycles. Vekoma was also behind Guardians of the Galaxy: Cosmic Rewind, which opened last year at the neighboring Epcot park and features rotating roller coaster cars so that riders can see screens set into the walls as they zip by.

Both break new ground but Disney still can't afford to rest on its laurels. Testimony to this, Disney's parks, experiences, and products chairman Josh D’Amaro recently told the Orlando Business Journal that "Tron is spectacular...it adds to the whole experience we offer here. But there’s no end...Tron is the tip of the iceberg of what's coming."

Operators need to continuously come up with new experiences to tempt guests through their turnstiles and one manufacturer has got more tricks in its spell book than any of the others. In fact, it has invested so much in the pursuit of the world's most immersive theme park experience that it has driven itself to insolvency.

Canadian corporation Dynamic Attractions Limited (DAL) isn't a household name but if you've ever been to a theme park chances are that you've experienced its handiwork. Founded in Vancouver in 1926, it began life specializing in fabricating large-scale steel structures. When the infrastructure boom hit western Canada, the company gained new skills by building several complex scenic bridges.

In the 1970s DAL won a string of contracts in astronomy and became a world leader in this highly specialised field. Over the past 40 years DAL and its forerunners built more than half of the world’s large telescope enclosures including one for Hawaii's huge Canada-France-Hawaii Telescope. Surprisingly this was its route into ride manufacturing as some of the engineers building the telescope ended up working in the theme park industry. Both fields rely on ground-breaking precision engineering and DAL soon made a name for itself with its work on Disney's beloved runaway mine train ride Big Thunder Mountain.

It went on to manufacture the systems behind many of the Mouse's most well-known attractions including Radiator Springs Racers, a full-size slot car-style ride themed to Pixar's Cars movie, and its counterpart, Test Track, at the futuristic Epcot park in Walt Disney World.

DAL also engineered the ingenious flying theater ride system behind another Epcot fan favorite, Soarin' Around the World. This attraction simulates a hang glider flight by hoisting the ride seats in front of a towering screen which shows footage from fly-bys over some of the world’s most famous landmarks such as the Taj Mahal and the Sydney Opera House. The seats sway in time to the scenes and are blasted with air to give the impression of flight. Scents of grass are pumped in when flying over the savannah and guests can smell the sea when the glider appears to be skimming over it.

The financial crisis hit the structural steel fabrication sector hard in 2009 due to a steep decline in auto sales and construction. DAL switched its focus instead to its burgeoning engineered products division which proved to be a prudent decision.

By 2018 the steel industry was still in so much turmoil that there was a 50% fall in the share price of US Steel, which was once a major player in the theme park industry thanks to its involvement with the construction of Walt Disney World. In contrast, DAL was firing on all cylinders and the group reported revenue of $135.4 million in 2018, its best performance over the past five years.

By then, DAL had a string of successes under its belt at Disney's arch rival Universal Studios. It worked on the award-winning Amazing Adventures of Spider-Man and Revenge of the Mummy, which blends a slow-moving ride through a haunted house with a roller coaster. DAL even built the system behind Universal's acclaimed Harry Potter and the Forbidden Journey ride which features seats attached to a robot arm on a roller coaster track to make guests feel like they are riding on a broomstick alongside the boy wizard.

Its latest work for Universal was unveiled just last month in the new Super Nintendo World at Universal Studios Hollywood. Called Mario Kart Koopa's Challenge, the ride is set in a stone stronghold with a soaring entrance shaped like the head of Mario's reptilian nemesis Bowser. The entrance passes through his gaping mouth and once inside, guests are given augmented reality headsets which look like Mario's trademark scarlet cap. They enable riders to compete against each other on sweeping screens showing the scenery as they speed past it on kart-shaped cars.

The attraction brought the total value of the ride contracts DAL has delivered to more than $700 million but that was just the start. DAL had a vision of creating the world's most advanced and immersive roller coaster and unveiled it in a teaser video back in 2014. Called the SFX Coaster it promised to combine a number of new and unique effects such as a sideways drop, a vertical drop and a gyro table which can tilt and spin the ride car 360 degrees. DAL knew it would open up a whole new world for theme park operators and it bet the farm on it.

It took DAL the equivalent of 500 person years to bring the SFX Coaster to life and it had no shortage of takers. Two were sold to the former 20th Century Fox World park in Kuala Lumpur, Malaysia. Ferrari World: Abu Dhabi bought another one with two snapped up by Chinese real estate developer Evergrande. Aside from Ferrari World, DAL's park partners proved to be a controversial bunch.

Evergrande borrowed more than $300 billion to fuel aggressive expansion which turned it into one of China's biggest companies. However, in 2020 Beijing brought in new rules to curb borrowing by big real estate developers causing Evergrande to offer its properties at major discounts so that money continued to come in. This led to it missing its interest payments to international investors in December 2021 prompting the ratings agency Fitch to declare Evergrande in default.

Evergrande is now in the midst of a restructuring so it seems unlikely that it will proceed with the development of its theme parks. However, DAL is not expected to lose out on this as it has received advance payments and it isn't expected that it will return them. The outlook for DAL in Malaysia isn't as rosy.

Originally scheduled to open in 2016, 20th Century Fox World was held up after Disney announced its $71.3 billion purchase of the film and television assets held by 21st Century Fox in December 2017. Even though the park was already deep into development by the time of the takeover, Disney wanted to pull its intellectual property but eventually settled with the operator, gaming giant Genting. The park's name was changed to Genting SkyWorlds and it eventually opened in February 2022 without a number of its attractions, including the two SFX Coasters. It wasn't for want of trying.

The first of the rides is themed to the Aliens vs Predators (AVP) action movie and DAL committed to building the coaster system for a lump sum of $34 million. Recent filings by DAL reveal that it has already spent $26.4 million on the ride and "has only been paid $24,000,000." The filings add that "AVP Malaysia is not operational and would take a significant further expenditure of funds to be completed...The $10,000,000 of funds remaining to be paid by Genting on the contract would not cover those costs which are estimated to be $16,000,000. Because of the complexity of the ride system, and the design changes that would be required to make it operational, there is a risk that the client could cancel the contract and demand that the ride components installed to date be removed from the facility."

The outlook is brighter for the second SFX Coaster at SkyWorlds which is based on the Sons of Anarchy (SOA) series about a father who balances parenting with his involvement in a motorcycle gang. DAL committed to building the coaster system for $24 million and according to the filings "the client has paid $23,000,000." They add that "SOA Malaysia is about 95% complete with a punch-list of work to get it operational and it is estimated that such work could cost an additional $1,500,000." That sounds pretty close to the budget but it's actually far from it as DAL has already spent $30.7 million on building the attraction.

So far, the world's only operating SFX Coaster is in Ferrari World: Abu Dhabi and it opened in January to rave reviews. No expense was spared as the filings reveal that it has come "at a total cost of USD$28,300,000 on a lump sum contract of USD$18,200,000 which the client has only paid USD$17,200,000."

It brings the average price of these three coasters to $34.3 million with AVP being the most expensive at $42.4 million. It is worth stressing that these sums just relate to the mechanisms underlying the attractions as DAL's contracts tend to be for the ride systems only. The park operator then hires other suppliers to provide the theming and audio visual equipment.

The exceptions are flying theater contracts which usually bundle the AV equipment and screen with the ride system since they are so integral to it. Given that theming and AV costs can run into many millions of Dollars, the complete cost of a top-spec SFX Coaster can soar north of $50 million. DAL didn't cut any corners on its development.

That is clear from the filings which describe it as "a first of its kind due to the complexity and special effects incorporated into each roller coaster. As a result, during the engineering, design and construction of the Coaster Projects, DAL experienced significant cost overruns that exceeded USD$21,000,000 and is forecasted to lose a minimum of USD$20,000,000."

The filings add that "these cost overruns on the Coaster Projects significantly impaired the cash flow available to the Dynamic Group." Covid couldn't have come at a worse time as almost two years of theme park ride capital expenditure planning time was lost. The filings add that there was a dramatic decline in large custom ride projects and DAL "also suffered due to the increases to the costs of virtually all raw materials and subcontract services as well as higher labour and shipping costs over the last few years."

The pandemic "also had a detrimental effect on many contracts that required extensive fabrication, commissioning and retrofitting on-site as these trades were hampered by COVID-19 restrictions and quarantining of site personnel and countless mobilization, demobilization and remobilization orders, none of the significant costs of which were covered in the pre-COVID-19 lump sum contract prices committed to by DAL."

Against this backdrop it's not surprising that DAL has booked heavy losses. The group has been in the red for the past five years with its underlying loss in 2022 rising by 21.2% to $7.2 million on revenue of $26.8 million. The filings reveal that its financial woes have been compounded as "Dynamic Group has recently been denied the opportunity to bid for a significant three ride contract for a large theme park in China due to concerns about Dynamic Group’s financial condition."

In turn, this weighed on its balance sheet and in 2022 the group had assets of $31.9 million including $738,000 of cash, $8.3 million of receivables and work in progress and $2.9 million of property, plant and equipment. In contrast, its liabilities came to $94.5 million with the biggest component being $26.3 million of term loans.

As a result of this, the group is insolvent and the filings state that "its near term liquidity issues have resulted in an inability to continue to make payments as they come due." They add that "Dynamic Group is currently in the midst of a liquidity crisis, primarily due to lack of sufficient cash flow, over-budget and out of the money ride projects related to special effects roller coasters and significant secured and unsecured debt."

DAL took desperate steps to bring a sparkle back to its bottom line. Over the past four years the group has cut 263 employees giving it a total of just 75 with overheads of less than $12 million. However this still didn't stem the red ink and its cash flow forecasts show that during the 13-week period ending on June 9, 2023, the group will have a net cash loss from operations of approximately $2.3 million.

To stop creditors calling in their money, on March 9 the group informed the Canadian court of its intention to enter into a Companies' Creditors Arrangement Act which is essentially Canada's equivalent of Chapter 11. This was first reported on March 20 by Screamscape, the world's leading multi-theme park news site, and the situation has developed since then.

The filings reveal that DAL has been seeking funding since 2019 when it secured a loan from Universal City Development Partners to allow it to complete its rides for Super Nintendo World despite the significant negative cash flow created by the SFX Coaster projects.

In October 2019 DAL engaged Canadian financial services firm Canaccord to attempt to raise additional capital to address the liquidity issue. Although Canaccord conducted a wide search, it failed to secure funding due to the lingering effects of the COVID-19 pandemic and the losses associated with the SFX Coasters.

DAL then tried again with another Canadian firm, Everleaf Capital and although it approached a number of financial partners the answer was always that they were hesitant to provide funding until the liquidity issues within the group were resolved.

In August last year DAL at last arranged funding from Hong Kong-based Promising Expert Limited which paid $16 million to clear the Universal City Development Partners loan and repay $2 million to Export Development Canada. This state-owned organization had provided guarantees to the Canadian Imperial Bank of Commerce on letters of credit that DAL required for the development of the SFX Coasters. Promising Expert gave the Dynamic group a further $1 million unsecured bridge loan earlier this year which followed a separate deal to raise $5.1 million of additional equity in 2022. Even that wasn't enough.

At the end of last week the Canadian court approved a sales and investment solicitation process which formally put the Dynamic group on the market. The process is being handled by FTI Consulting and interested parties have until April 28 to submit bids with a final auction taking place on June 8. The court also approved increasing the group's interim financing to $2.6 million so that it has enough liquidity to see it through the sale process.

Opportunities to acquire such a storied brand in a close-knit sector like the theme park industry rarely come up so it is likely to attract a great deal of interest. It isn't clear how much the company could sell for but one thing that is for sure is that it won't be valued on a multiple of its earnings as it has made heavy losses.

Taking a 1.1x multiple of its revenue, which is reasonable for engineering firms, would give Dynamic a value of $48 million based on its average takings over the past three years. However, its $31.9 million of assets is considerably less than this whilst its $94.5 million of liabilities are considerably higher so a valuation in the mid $30 million range might be more expected. Time will tell and ironically, Dynamic probably can't wait for this roller coaster ride to be over.