Fitch Ratings Inc says the consolidation trend that is sweeping the slot supplier industry “is arguably overdue”.
“Duplicative costs including research and development have helped prime the industry for consolidation and we believe merger and acquisition activity in the sector underscores demand for slot suppliers’ content in a slow growth environment,” specially in the United States, the ratings agency said in a statement on Tuesday.
U.S.-based Scientific Games Corp last week announced that it would purchase supplier Bally Technologies Inc in a deal valued at US$5.1 billion. Scientific Games, initially a lottery equipment and management provider, purchased top-four U.S. slot supplier WMS Industries Inc in 2013. Also in that year, Bally Technologies acquired casino equipment company SHFL Entertainment Inc for US$1.3 billion.
The Scientific Games-Bally deal follows GTech SpA’s announced acquisition of International Game Technology (IGT). The US$6.4-billion transaction, confirmed last month, allows GTech, an Italian firm that is a commercial lottery operator and provider of gaming technology, to enter the U.S. casino slot supplier industry, where IGT is a top player.
“The Scientific Games’ merger further consolidates the already oligopolistic slot supplier industry to create an almost equal sized competitor to IGT, the incumbent market share leader, and offers tangible cost synergies,” Fitch said. “In addition to cost synergies, we believe a marriage of slots and lottery business will enable Scientific Games and GTech to leverage Bally’s and IGT’s slot content, respectively, across their lottery business.”
Consolidation is also taking place in other sectors of the casino supplier industry. JCM Innovation Corp, a subsidiary of JCM American Corp, announced on Monday it has entered into an agreement to buy U.S.-based FutureLogic. The acquisition adds to JCM’s line of peripheral component products, including bill validators, printers and digital media.
In April, U.S.-based Global Cash Access Holdings Inc, which supplies cash access products and related services to the gaming industry, completed the acquisition of U.S.-based NEWave Inc. NEWave is a supplier of compliance, audit and data efficiency software to the gaming industry.
Good for customers
Marcus Prater, executive director of the Association of Gaming Equipment Manufacturers, told GGRAsia that the ongoing consolidation trend is positive for the industry.
“The goal of these mergers would be to position your business for not only growth for the future but for immediate benefits now,” he said. “I think it is good for suppliers’ customers because when you combine the strength of for example Bally, SHFL, WMS and Scientific Games, the customer will be expecting the best content and the best technology – and rightfully so.”
Mr Prater however cautioned: “With these things, when you start mingling best of breed when it comes to content and resources, it takes time [to implement]. The end result of that – the advantage of that, we won’t see for some time.”
Scientific Games president and chief executive Gavin Isaacs told a conference call on Tuesday that the feedback from casino operators regarding the company’s acquisition of Bally Technologies “has been fairly positive”.
Asked if he was worried operators could revise the overall product share of the company on their casino floors after the Bally acquisition, to avoid over-reliance on one supplier, Mr Isaacs replied that what matters most to operators is game performance.
“If the games are good and have got legs, casinos will buy them,” he said. “You are not going to penalise one company by virtue of a merger if their games are good. On the same token, you can be a very small one-man shop almost, or a five-men shop, with the right content, and the biggest casinos will still buy from you.”
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Credit rating agency Fitch Ratings