Illinois caught the gaming industry’s attention in June when state lawmakers and the governor approved the nation’s largest gambling expansion to an existing market in more than a decade.
The development also caught the interest of private equity giant TPG Capital.
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Through TPG Pace, the firm’s publicly traded acquisition company, the investment fund entered into a transaction agreement with Accel Entertainment, a slot machine provider with roughly 25 percent of Illinois’ video lottery terminal market and the owner of a conditional slot route operator license in Pennsylvania.
Accel is a mid-size company. But not for long.
With the financial backing of TPG, one of the two controlling private equity entity firms that took Caesars Entertainment private more than 10 years ago, Accel will have the funds to expand in Illinois, Pennsylvania, and any other market looking to add slot machine routes, often referred to as distributed gaming.
TPG Pace is described by Union Gaming Group analyst John DeCree as a “blank check company.” If the merger is approved by the end of the year, Accel will have an estimated market value of almost $1 billion.
“Accel has a strong track record of executing accretive (mergers and acquisitions), including eight transactions since 2016,” DeCree told investors in a September research note where he initiated a Buy rating on the combined TPG Pace/Accel entity with a target price of $13 per share.
“Accel is a best-in-class distributed gaming operator with a leading position in Illinois, virtually no net debt, and a double-digit growth outlook,” DeCree said.
Under the deal, existing Accel management will roll over 80% of their shares into the publicly traded company and will maintain operating control of the business, which currently has almost 8,100 video gaming terminals throughout the state. Accel has an agreement to acquire rival Illinois slot route operator Grand River Jackpot, which will add another 1,854 video gaming terminals to the portfolio.
Under the approved Illinois gaming expansion plan the market is expected to grow even larger, both financially and by sheer size. The maximum wager on gaming terminals will increase from $2 to $4. The maximum payout will grow from $500 to $1,199, with progressive jackpots up to $10,000.
At the end of August, according to state gaming regulators, some 7,100 Illinois locations operated 32,561 gambling terminals. The locations include bars, taverns, restaurants, convenience stores, fraternal lodges, gas stations and truck stops – anywhere with a liquor license.
Under the approved expansion plans, locations will be able to add one additional video lottery terminal, bumping the number up to six games. Some of Illinois’ high-volume truck stops can offer up to 10 games, double the previous allotment.
“While not every location in the state has the gaming volume to support additional video gaming terminals, we estimate the top 25% of Accel’s location will add the sixth, representing 550 additional units in 2020,” DeCree told investors.
Video lottery gaming has been a growth story in Illinois, much to the detriment of the state’s riverboat casino industry. Between 2013 and 2017, Illinois casino revenue has declined 15%. In the same five years, revenue from video lottery terminals is up nearly 900%.
The activity has also attracted traditional casino operators with riverboat properties. Penn National Gaming, which has Hollywood-branded casinos in Aurora and Joliet, acquired route operator Prairie State Gaming in 2015, which has more than 2,000 gaming terminals in 400 locations. Boyd Gaming, which owns the Par-A-Dice in East Peoria, bought Lattner Entertainment Group last year, which has nearly 1,000 video gaming machines in 220 locations.
Las Vegas-based Golden Entertainment, which dominates Nevada’s slot route market, was licensed in Illinois in 2017, but has not moved forward on the operations side.
Seven states – Illinois, Nevada, Montana, Oregon, South Dakota, Louisiana and West Virginia – offer limited stakes, distributed gaming. Pennsylvania legalized the activity almost two years ago, focused just on truck stops, but has been slow to roll out.
Nevada’s route operations don’t disclose gaming revenue totals.
DeCree said the pace of distributed gaming rollout across the U.S., “has been a bit slower than expected.” He blamed large casino operators who lobby against the expansion because they want to avoid competition.
In Illinois, the state also authorized six new casinos, including one in Chicago, and legalized sports betting.
“However, we continue to believe more states will look to VGTs in the coming years as gambling expansion continues,” DeCree said. “In 2018, Indiana, Missouri, and Mississippi all considered distributed gaming legislation.”
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
