THE BACK PAGE: A nice deal for Boyd
July 8, 2011
After its post-Echelon recessionary walk in the wilderness, the kind of trip that many in the industry have had to make the past few years, Boyd Gaming has made a couple of smart moves the past two months.
In May, it sold the Dania Jai-Alai facility in south Florida for $80 million. The decision not to compete in this crowded market under Florida’s racetrack gaming tax and regulatory regime was understandable. Between the nearby Seminole Hard Rock facility, other racetrack gaming in the area and the long-term potential for commercial casino development in South Florida, all signs pointed toward an exit for Boyd. Last month, it wisely applied those funds toward the acquisition of IP Biloxi Resort & Spa, a deal which significantly strengthens Boyd’s presence in the Louisiana and Mississippi markets, where it already operates four properties.
On a conference call following the acquisition, Josh Hirsberg, chief financial officer, Paul Chakmak, chief operating officer and Keith Smith, president and chief executive officer, made the following points supporting the decision:
The price is right: Purchase price is $278 million in cash and Boyd will also contribute $10 million to the Ralph Engelstadt Foundation to assist various charities in the southern Mississippi area over the next five years. The company also plans to invest $44 million in certain capital improvement projects over the next year upgrading the property’s HVAC and systems and barge. The acquisition will be accretive to earnings and generate free cash flow. It also comes with 13 acres of developable land that can be used for long-term expansion.
The IP produced approximately $41 million of EBITDA on an LTM basis through May of 2011, on par with Boyd’s Delta Downs operation. The company believes the EBITDA potential of this property is even higher, with a minimum of $5 million in synergies achievable in the first year based on preliminary diligence. When you include these efficiencies and fully load the $44 million that it expects to spend, the acquisition is priced at an attractive 7.2X multiple.
The $80 million of proceeds from the disposition of Dania, combined with the $332 million fully loaded acquisition of IP provides Boyd with $46 million of EBITDA at a net cost of approximately $250 million. Furthermore, over the past six months, Boyd’s operations have generated an excess cash balance of approximately $60 million, so net debt as a result of these two transactions, will increase by less than $200 million for the $46 million in new EBITDA.
The market and the product are right: The Mississippi Gulf Coast is the nation’s sixth largest market with 2010 revenues in excess of $1 billion. Like many mature markets, growth has been slow, but competitive risk from feeder markets is relatively low. Even if Florida expands, its visitors come from the Panhandle in the north, not the Miami area. Expansion in Baton Rouge is not seen as a negative for the Gulf Coast. Mississippi also offers a competitive tax rate and a stable regulatory environment.
The IP Biloxi underwent a complete renovation in 2005 and Boyd sees it as the clear number two property in the Gulfport-Biloxi market, competing on the same level as Beau Rivage. The property has also been very well-run, generating significant EBITDA increases in the past year, due to fine tuning of marketing and operations and revenue gains. The $5 million in synergies comes solely from the purchasing side and plugging a stand-alone property into Boyd’s corporate systems.
B Connected gets a big boost: Boyd presently has four casinos in the region, including three in Louisiana; Sam’s Town Shreveport, Delta Downs outside Lake Charles and Treasure Chest in suburban New Orleans, and Sam’s Town Tunica in northern Mississippi. By bringing IP Biloxi into its B Connected player loyalty network, Boyd anticipates it will be able to grow its market share and drive substantial gains in customer traffic to the property, producing healthy growth in both the top and bottom lines. Biloxi is a true regional destination; Boyd’s customers in the region already travel north to south with one property designated as their home property, but the company hasn’t been able to offer them anything in the Gulf.
Boyd sees a conversion to B Connected happening fairly quickly after the deal closes later this year. The property it expects to benefit the most is Treasure Chest in New Orleans, whose customers frequent the Biloxi market as a getaway. Lake Charles and Tunica are also seen benefitting, Shreveport a little less so.