The planned merger of the global gaming and PlayDigital units of International Game Technology Plc (IGT) with Everi Holdings Inc under an ‘IGT Inc’ stock ticker could be a “modernisation catapult” for the casino sector, says B.Riley Securities Inc in a Thursday note.
“While the EveriI/IGT merger focus has been on potential game sale disruption or overlap, the amalgamation of Everi fintech [financial technology] and IGT systems creates a modernisation catapult for the casino industry, generally,” stated analyst David Bain.
The institution reiterated that the IGT legacy business would sell its gaming and digital business to Everi in return for US$$2.6 billion cash and 103.4 million newly-issued ‘MergeCo’ shares, or 54 percent of total shares. The deal is expected to close “in late 2024 or early 2025,” according to a February announcement.
Mr Bain stated: “New MergeCo shares will be distributed to IGT/RemainCo shareholders, which will be taxable, leaving some uncertainty as to the exact value being received.”
The combined entity has obtained debt commitments of US$3.7 billion to pay off existing debt and to make the US$2.6 billion payment to IGT/RemainCo. About US$1.0 billion of the proceeds will be used to refinance Everi’s existing debt. The financial commitments include an additional US$500 million revolver.
“Proforma net leverage is expected to be 3.2x to 3.4x. Proforma adjusted EBITDA [earnings before interest, taxation, depreciation and amortisation] is approximately US$1 billion in calendar year 2024 and the company expects it to grow at a high-single-digit compound annual rate through 2026, including US$75 million of identified cost savings (supply chain, real estate consolidation and capital expenditure efficiencies),” said the brokerage.
The analyst added that the “RemainCo, or current IGT,” would be a “pure-play lottery company under a new name/ticker symbol”.
The newly-created IGT Inc would have “strong leadership” via Michael Rumbolz, executive chairman of Everi since 2021, stated B.Riley Securities. He will serve as chairman of the board of directors of the combined company.
The institution also noted he was additionally chairman of the trade body the American Gaming Association (AGA), “director of Seminole Hard Rock Entertainment, and director of VICI Properties Inc”, a U.S.-based real estate investment trust specialising in casino and entertainment properties .
Merged biz strong leadership
Mr Rumbolz is “very well respected by industry insiders, investors and industry analysts, in our view,” stated Mr Bain in his memo.
The note also observed that Vince Sadusky, current chief executive of IGT, would be CEO of the MergeCo, while Randy Taylor, current CEO of Everi, would move to the board of the MergeCo, and Mark Labay, current Everi chief financial officer (CFO), would assume the role of chief integration officer. Additionally, Fabio Celadon, executive vice president of IGT’s strategy and corporate development would become CFO of the combined entity.
All the executive moves “give us further confidence in MergeCo’s long-term success,” stated B.Riley Securities.
Nonetheless, Mr Bain conceded: “We understand scepticism surrounding an Everi/IGT combination, given historical, somewhat immediate mega-merger supplier integration pains… However, we see enough dissimilarities from certain past transactions to give relative solace in this case.”
The areas of difference from past mergers in the sector included that “proforma leverage of 3.2x to 3.4x is not nearly as elevated as certain past mega-mergers, and free cash flow visibility is high”.
Additionally, said the analyst, “product overlap is not as acute as other past supplier mergers, which could allow for certain revenue synergies”.
IGT had “larger access to Class II markets”. That was a reference to slot machines that use a centralised system to generate results – a format used in tribal gaming venues in the United States – versus ‘Class III’ slots using a random number generator in each machine, which are usually associated with commercial casinos in the U.S. and other markets.
Everi already had good access to “international markets, as well as strong video [slot] distribution,” stated the analyst.
“Generally, the most significant overlap between IGT and Everi is the mechanical stepper category,” observed Mr Bain.
“Mechanical reels are by far the minority versus the video form factor. However, the stepper market has grown more competitive for Everi over the past several quarters,” he added.
