Amid just-announced takeover by Aristocrat, NeoGames executives meet Nevada regulators this week

May 15, 2023 9:14 PM
Photo: NeoGames (courtesy)
  • Buck Wargo, CDC Gaming Reports
May 15, 2023 9:14 PM

The announcement late Sunday that Aristocrat Leisure is acquiring NeoGames SA for about $1 billion comes as Nevada regulators this week are slated to hold hearings on licensing the Israel-based online-gaming provider.

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The Nevada Gaming Control Board, in a special meeting announced May 9, will consider NeoGames’s application for registration as a publicly traded corporation for licensure as the sole shareholder. The license application as a manufacturer and distributor is in addition to licensing for key executives in the company.

Michael Lawton, a senior economic analyst with the Gaming Control Board, said Monday that the matter is scheduled to go forward. The Nevada Gaming Commission also has the matter on its agenda Thursday for its regular monthly meeting. That agenda was released last week as well.

Aristocrat said the takeover would give the company an entry into the ilottery market and pave the way for further penetration in online-gaming verticals.

Gaming consultant Brendan Bussmann, managing partner of B Global, said this licensing process has likely been in the works since long before any deal was discussed and would still be sought in case the deal falls through.

Special meetings are held when applications can’t be finalized ahead of the regular monthly Gaming Control Board meeting and there’s a push to get this done before the Gaming Commission meeting this month, rather than over the summer, Bussmann said.

“I’m sure they’ll get asked about this transaction to some extent, but clearly, they need this licensing to go forward anyway. If for some reason the transaction wouldn’t go through, they’ll need their license.”

Bussmann added, “We’ll hear more Wednesday about their plans and desires,” but NeoGames, which is licensed in other states, has several components as they relate to remote gambling “that can play a role in infrastructure for the existing sports-betting apps and when, we hope, igaming comes to Nevada.”

Some Nevada lawmakers are pushing for a lottery in the state, but that would be several years away if it happens and has no bearing on what’s going on now, Bussmann said. He added that there’s likely no relationship between the hearing this week and NeoGames’s announced sale to Aristocrat.

“Timing wise, it makes it interesting, but they were going through the licensing process well before this Aristocrat deal,” Bussmann said. “These things take time to mature and it takes awhile to do all the investigation work.”

As for the sale, Wall Street analysts have weighed in, with their notes to investors being positive.

Truist Financial analyst Barry Jonas said they see limited risk to the transaction closing in the next 12 months. NeoGames isn’t actively shopping for another offer; there’s a $40 million breakup fee and an all-cash offer with no financing. Also, Aristocrat trades at a “sizable premium of 12x EBITDA” which Jonas said limited competing bids from most competitors.

“Given Aristocrat’s leadership in land-based gaming/slots, we think this transaction further accelerates (its) competitive positioning in digital gaming/ilottery, especially as it moves more of its content online,” Jonas said.

Jonas said they were positive on NeoGames’ long-term outlook following the company’s Capital Markets Day in March, as “the company will now progress toward its $500 million revenue target by 2028 with the backing of Aristocrat.”

Jonas called it “a busy Mother’s Day,” with this deal and Fanatics announcing an agreement to buy PointsBet’s U.S. operations for $150 million.

“We and others have suggested more consolidation is coming in gaming and while these deals have some unique attributes, we do see scope for more mergers and acquisitions for quality assets/earnings through valuation multiples for many companies in the group,” Jonas said.

Steven Pizzelia, an analyst with Deutsche Bank, called the $29.50 all-cash deal a 130% premium over NeoGames’s closing price on Friday.

Pizzelia said that the downside risks include an inability to complete the transaction as currently contemplated; a sharper-than-expected softening of global lottery and igaming revenue; losses of key contracts or adverse changes to terms; unfavorable changes to tax structures or regulations in certain markets; integration risk from the merger; pressure on the shares that could result from top shareholders potentially exciting or trimming their positions; and foreign-exchange risk.

Simon Thackray, an analyst with Jefferies, said the strategic value is clear, as this supports Aristocrat’s ambitions to have global scale and capability, with the NeoGames acquisition supporting capabilities across content, RGS, aggregation, and platform.

“AspireCore RMG technology is a direct alignment to what Aristocrat has been talking to through its RMG Buy and Build strategy, with a market-leading PAM and platform that service igaming and OSB operators globally,” Thackray said. “The NeoGames’s ilottery platform and BtoBet OSB solution would be complementary to the core RMG offering and Pariplay should see synergies with existing Aristocrat content aggregation and distribution capabilities.”

NeoGames (NGMS) executives aren’t unfamiliar with Aristocrat, as AspireGames acquired by NGMS’s U.S. business is run by ex-Aristocrat executive Quincy Rave, who held senior strategic product roles with his former employer, Thackray said.