Golden Entertainment announced Monday it entered into an agreement to divest its distributed-gaming, or slot-route, operations in Nevada and Montana for $322.5 million, plus $39 million in cash at closing, prompting one Wall Street analyst who says it sets up Golden to acquire casinos or be acquired.
Illinois-based J&J Ventures Gaming, LLC, known as J&J Gaming, will acquire Golden’s distributed-gaming operations in Nevada for $213.5 million, plus an estimated $34 million of purchased cash, and Golden’s distributed-gaming operations in Montana for $109 million, plus an estimated $5 million of purchased cash, Golden announced.
In addition, Golden will enter into a five-year agreement under which J&J Gaming will support the gaming operations of Golden’s branded tavern locations in Nevada. The deal is expected to close by the end of the year.
The aggregate-cash consideration, plus purchased cash, represents a multiple of approximately nine times the adjusted EBITDA for Golden’s distributed-gaming segment for 2022 of $44 million, net of $3.8 million of corporate costs allocated to the company’s distributed-gaming segment.
“We believe this transaction will provide further success for our route partners through sharing best practices and new technology,” said Blake Sartini, chairman and CEO of Golden Entertainment. “Our confidence in J&J Gaming’s future success is highlighted by our new long-term agreement with J&J Gaming to service Golden’s wholly owned tavern portfolio. For Golden, these transactions will allow us to focus our management team and capital on our portfolio of wholly owned casinos and taverns in Nevada and create additional value for our shareholders.”
J.P. Morgan released a note to investors today, stating that the deal and price will benefit investors. “The sale further simplifies Golden’s business (recall it recently announced a sale of Rocky Gap Casino for 10 times) and should remove a drag on Golden valuation, as investors have largely ascribed a mid-single-digit multiple to the distributed-gaming business,” according to the note authored by Omer Sander.
The note said it further de-levers Golden’s balance sheet and enables the company to become more aggressive on capital return to shareholders and additional mergers and acquisitions, “predominantly casinos in Nevada or, on the other side, potentially positions Golden as an acquisition candidate. In short, the deal is good for the average institutional investor, given the sale premium valuation to where Golden trades and also for other operators looking to grow inorganically in the Nevada casino/tavern market. Post-deal, 100% of Golden’s EBITDA will come from Nevada.”
Golden Entertainment owns and operates a diversified entertainment platform, consisting of a portfolio of gaming and hospitality assets that focus on casino, branded-tavern, and distributed-gaming operations. Golden operates nearly 16,800 slots, over 100 table games, and over 6,200 hotel rooms. Golden owns 10 casinos, nine in southern Nevada and one in Maryland, and more than 60 traditional taverns in Nevada. Through its distributed- gaming operations in Nevada and Montana, Golden operates video gaming devices at over 1,000 locations.
Established almost 100 years ago, J&J Gaming is a privately held business and the leading distributed-gaming operator in Illinois, with related operations in several other states. J&J is a VGT operator predominantly in Illinois and Pennsylvania. J.P. Morgan estimates that in Illinois, J&J has about a 30% market share of the VGT market.