The news last week that GTECH purchased International Game Technology (IGT) probably shocked few—it had been speculated for weeks that IGT was for sale and GTECH, the Italy-based producer and operator of lottery products and systems, was often mentioned as one of a handful of gaming providers with both the desire and means to purchase IGT, one of the world’s largest slot machine suppliers that suffered a series of recent business setbacks.
Still, the scale and scope of the acquisition and eventual merge of the two entities is somewhat astounding, at least compared to the usual M&A activity that occurs on the supplier side of the gaming business. GTECH will shell out a total of $6.4 billion for IGT—$4.7 billion in cash and stock and the assumption of $1.7 billion in outstanding IGT debt. Once the deal is approved by shareholders from both companies as well as state and federal regulators, a process that some estimate could take as long as one year, IGT and GTECH will combine under a newly formed UK holding company (NewCo) with its corporate headquarters in the United Kingdom and operating headquarters in Las Vegas, Providence, R.I., and Rome, Italy. NewCo will be led by a 13-member board of directors, with current IGT Chairman Phil Stare assuming the chairman position at NewCo and current IGT CEO Patti Hart serving as vice chairman. Marco Sala, the current CEO of GTECH, will serve as CEO of NewCo.
The combination of GTECH and IGT will create the world’s leading end?to?end gaming company, uniquely positioned to capitalize on opportunities across global gaming market segments in both the lottery and casino segments, according to press materials. If current business models and exchange rates hold, the combined companies are projected to generate $6 billion in yearly revenue and $2 billion in EBITDA.
“This transaction is transformational for our business,” Sala said in a prepared statement. “With limited overlap in products and customers, the combined company will enjoy leading positions across all segments of the gaming landscape. It will increase our global scale and with a full suite of offerings and robust customer relationships across the client spectrum, the new company will have unparalleled capabilities to address the ongoing convergence across global gaming segments. Our expertise across these segments and greater ability to invest in R&D will improve player experiences and benefit our government and business clients. The transaction will significantly enhance our cash flow and financial strength, and provide clear and achievable cost and revenue synergies.”
“This opportunity comes along once in a CEO’s lifetime,” Hart told the Las Vegas Review-Journal. “The ability to start from scratch and create a company with this strength is all about the perfect timing.”
The potential uptick in revenue will come as welcome news to IGT, which has suffered from its share of economic bad news of late. Bloomberg reports IGT’s share of North American slot machines sales, which amounted to 60 percent of the market in 2003, was down to 41 percent in 2012. This year, IGT saw revenue decline 14.5 percent and earnings drop 66 percent for the quarter ended March 31, according to the Las Vegas Review-Journal, leading the company to reduce its global workforce by 7 percent to help defray costs.
“Given the sluggish growth in its domestic market and the increased competition, it [the acquisition/merger] was probably the best decision for IGT,” Todd Eilers, founder of Eilers Research told Bloomberg.
Indeed, the timing appears good of late for a number of gaming suppliers, who, like GTECH, are pursuing a growth-through-acquisition strategy. The latest company to make a splash in this area was Aristocrat Technologies, which earlier in July announced the $1.28 billion purchase of Video Game Technology, a Tennessee-based producer of Class II slot games and systems for the tribal gaming market with an installed base of approximately 20,200 leased machines.
“VGT has a complementary product offering and provides a unique opportunity to accelerate our growth in the US recurring revenue segment, which has for some time been an important strategic objective of Aristocrat," said Jamie Odell, CEO and managing director for Aristocrat in a prepared statement. “This combination also offers exciting growth opportunities for VGT by leveraging premium Aristocrat games and systems products, as well as national distribution opportunities for VGT's Class II products."
Aristocrat also announced the purchase of Paltronics, an Illinois-based supplier of value-added applications for in-game media windows and bonusing applications for EGMs, video poker machines and table games, for an undisclosed amount of money. “This is a compelling acquisition that will deliver significant value across key strategic segments, particularly our leading U.S. casino systems business and in the fast-growing linked progressive and jackpot markets,” Odell said.
Last year also saw its share of gaming supplier acquisition activity, headlines by Scientific Games’ $1.5 billion purchase of WMS Gaming, and the sale of SHFL entertainment to Bally Technologies for $1.3 billion.