Merlin Entertainments Faces Debt Pressure as Attractions Struggle

Merlin Entertainments, the British operator of Legoland resorts and Madame Tussauds, is confronting mounting financial pressure as heavy borrowing, weaker visitor numbers and changing consumer preferences challenge its global attractions business. The company, headquartered in London, is pursuing a turnaround under chief executive Fiona Eastwood while refinancing obligations threaten to constrain its recovery.

According to financial figures reported by The Telegraph, Merlin's net debt climbed from £1.1 billion in 2018 to £4.7 billion by the end of 2020. Its net financing costs subsequently increased from £38 million in 2018 to £368 million last year, while the company recorded a pre-tax loss of £426 million last year.

Visitor numbers also declined after the company was taken private. Merlin's attractions welcomed 60.5 million people last year, compared with 67 million in 2018, representing a decline of almost 10 percent.

The financial difficulties followed a 2019 takeover by a consortium comprising Blackstone, Kirkbi, the investment firm of the family behind Lego, and Canada Pension Plan Investment Board. The investors paid £4.7 billion for the business, valuing it at 12 times its annual earnings.

Before the transaction, Merlin reported £1.68 billion in revenue and a pre-tax profit of £285 million in 2018. The subsequent pandemic forced attractions to close, while rising interest rates and the cost-of-living crisis added pressure to the company's finances.

At the time of the takeover, the new owners promised "significant long-term investment" to support existing attractions and expand the business.

Helen Rodriguez, an analyst at CreditSights, said Merlin's investment decisions had also contributed to its difficulties. She argued that management had spread capital across too many attractions rather than prioritizing its strongest businesses.

"Instead of pursuing a very focused investment strategy towards their more successful concepts, they've gone wide and broad, and they've acquired and invested in a lot of different things over the last 15 to 20 years," Rodriguez said.

Rodriguez also questioned the effectiveness of the company's approach to expansion.

"The investment strategy hasn't been terribly effective," Rodriguez said.

Examples of projects that struggled include a £20 million Bear Grylls adventure park in Birmingham, which closed in 2024, and a Peter Rabbit-themed attraction in Blackpool. Merlin's leadership has also changed repeatedly in recent years.

Long-serving chief executive Sir Nick Varney departed in 2022 after 23 years in the role. Scott O'Neil, a former executive who led the Philadelphia 76ers basketball team, succeeded him but left two years later to run LIV Golf. Fiona Eastwood, previously an executive at the BBC's commercial arm, took over last year and introduced a turnaround plan.

Since Eastwood's appointment, Merlin has reduced the scope of its operations. In June, the company returned Blackpool Tower and the associated Peter Rabbit attraction to the local council after managing the tower for 15 years.

Merlin has also invested £70 million in new indoor roller coasters at Legoland parks in Florida and California. Attractions based on the children's programs Bluey and Paw Patrol have also opened at its British parks, as the company seeks to attract younger visitors in an increasingly competitive entertainment market.

Financial pressures remain particularly acute at Madame Tussauds, whose value Merlin reduced by £262 million last year. The company also recorded a £48 million write-down against other attractions in 2024.

More than £600 million of debt was due in 2027, creating a significant refinancing challenge. The sale of Merlin's Lego Discovery Centres to the Lego Group for more than £200 million in February provided some financial relief.

Rodriguez said extending repayment deadlines was important to allow the company time to implement its recovery strategy.

"in order to give them a couple of years to continue to try and turn around the business," Rodriguez said.

Merlin had previously explored selling Sea Life, but the effort did not produce an acceptable offer, according to Rodriguez.

"They tried to sell Sea Life, but there were no attractive offers," Rodriguez said.

Instead, the company agreed to a £657 million loan to refinance approximately £630 million of debt due next year. The financing is secured against attractions including the London Eye, the London Dungeon and Shrek's Adventure London.

The arrangement provides refinancing capacity but reduces the assets available to other creditors if Merlin experiences serious financial difficulties. A credit investor warned that placing valuable attractions under separate financing arrangements could weaken recovery prospects for holders of existing debt.

"Every time you put another one of those good assets under some different securitisation, you can rule that out to be part of your recovery calculation. If you do enough of that, recovery starts to move closer to zero," the investor said.

Merlin's bonds have fallen in recent months, with some trading at approximately 65 cents on the euro, compared with about 80 cents in the summer. Yields on some bonds issued before the refinancing have risen from roughly 7 percent at issuance to about 21 percent.

The company's immediate financial challenge remains the management of its upcoming debt repayments while its revised investment strategy seeks to restore performance across its attractions portfolio.

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