This morning, International Game Technology (IGT) announced that it will merge with competitor Everi Holdings.
Although Wall Street analysts had been led since last June to expect that IGT would spin off its lucrative slot machine business, the present deal appears much larger in its ramifications and is valued at $6.2 billion. The agreement prices IGT at $4 billion and Everi at $2.2 billion.
According to an IGT release, the company will spin off its Global Gaming and PlayDigital units, “then immediately combine such businesses with Everi to create a comprehensive and diverse global gaming and fintech enterprise.” IGT Global Lottery will be left as a stand-alone business.
Although Everi Executive Chairman Michael Rumbolz becomes chairman of the combined companies, the CEO’s role goes to IGT’s Vince Sadusky, “with executives from both companies in key leadership roles.” Of the 11 board members, six will be appointed by IGT, three by De Agostini S.p.A. (which owns 60 percent of IGT), and two by Everi.
Current Everi CEO Randy Taylor will be moved to the board of directors, while IGT Executive Vice President Fabio Celadon will elevate to CFO. Everi CFO Mark Labay will become the chief integration officer. On closing, IGT shareholders will still control the company with a 54 percent stock position; Everi shareholders will retain the remaining 46 percent.
IGT characterized the deal as creating a one-stop shop for the gaming industry, “across land-based gaming, igaming, sports betting, and fintech.” It projected combined 2024 revenue of $2.7 billion and cash flow of $1 billion. Cost savings of $85 million were predicted as the outcome of the merger.
Should it go through, the merger will result, according to IGTs predictions, in a debt-to-cash-flow ratio of 3.2 to 3.4, reflective of 2024 numbers, “with a rapid path to deleveraging,” as yet unspecified. Once “realized synergies” are incorporated, IGT expects $800 million in cash flow in the second year of the combined entities.
IGT will receive $2.6 billion in cash, financed by debt taken out by the combined companies. The money will go mostly toward retirement of IGT debt, with $600,000 set aside for “separation and divestiture expenses, tax leakage, and general corporate purposes.” Shareholders (primarily De Agostini) will be compensated by 103,400,000 shares of Everi stock, granting them a majority position.
When consummated, the deal will result in a company with 70,000 electronic gambling machines “generating significant recurring revenues.” IGT also boasted that it and Everi would offer a “Premier IP portfolio comprising some of the most successful game franchises across product verticals.”
Truist Securities analyst Barry Jonas was quick to react. In a note published a few minutes prior to the investor call announcing the merger, he wrote, “The deal doesn’t assume a huge premium for either business, but could set up over time for a gaming-tech powerhouse. Still, key execution and short-term disruption risks need to be understood by investors.”
He identified those risks as including a long regulatory-approval process, “which could present potential disruption challenges and create some near-term uncertainty.” He also indicated that the deal could betoken a lack of confidence by Everi leadership in their new slot-cabinet line and that IGT’s diversified revenue streams, a source of strength during COVID disruptions, would be diluted by the new structure.
The analyst wrote that during the merger period, opportunities would arise for other players in the segment to gain market share, “as some operators may be hesitant to commit significant capital until the deal is closed and the resulting strategy is clearer.” He also said it could create pressure for rival Play AGS to cut some sort of deal as “the last remaining small independent public manufacturer to pursue corporate actions.” Even so, he called the prospect of a united IGT/Everi “formidable.”
“At first glance,” he opined, “we think the deal offers more value than the alternative of an IGT Gaming/Digital spin-off, which [management] had originally noted was in consideration as a possible outcome of its strategic review.” In addition to Everi’s strength in tribal casinos, the addition of its financial technology with IGT’s gaming systems “would create a more complete all-in-one offering with a strong back-end product portfolio.”
While taking a wait-and-see attitude, Jonas called the projected $85 million savings not unreasonable, although the SciGames/Bally Technologies combination of 2015 proved that “synergies don’t always materialize.” However, he said management would be less distracted when shed of the lottery business. “The new entity will benefit from less Italian geopolitical risk in gaming and it will experience a less lump capex cycle from expansive lottery renewals.”
To reflect the merged identity, on closing of the transaction, the IGT ticker symbol will be retired in favor of a new one, yet to be announced.
The transaction is being underwritten by Deutsche Bank and Macquarie Capital in the sum of $4.2 billion, including a $500 million revolving line of credit. IGT expects the deal to close within a year.
