Casino equipment and lottery services firm Scientific Games Corp has designated the company’s wholly-owned interactive social gaming subsidiaries – including Dragonplay Ltd and Phantom EFX LLC – as unrestricted subsidiaries under its debt agreements.
The move has the goal of “maximising growth” for Scientific Games, the firm stated in a Wednesday press release.
The release added: “The company will consider a range of options to solidify its leadership in this fast growing segment, including potential new joint ventures, acquisitions, IPO [initial public offering] and other growth options.”
Scientific Games’ social gaming business generated sequential double-digit growth in each of the three most recent quarters, and a 68-percent increase in revenue year-on-year for the three months to June 30.
Despite strong growth posted in Western markets such as the United States for interactive social gaming – including both mobile and online segments – the format is still in the early stages of development in Asia, according to several sector executives.
“Our industry leading investment in innovation is paying off. Following our company’s third consecutive quarter of revenue growth, we see this as a perfect time to accelerate momentum and explore additional opportunities to deliver greater value from this strong and rapidly growing segment of our business,” Kevin Sheehan, chief executive and president of Scientific Games, said in a statement included in the press release.
Following the “unrestricted” designation for Scientific Games’ social gaming subsidiaries, they will remain wholly owned by the group, according to its press release.
Union Gaming Securities LLC analyst John DeCree said in a note following the announcement that investors had positively received the news of the “unrestricted” designation. The share price of Nasdaq-listed Scientific Games went up almost 17 percent on Wednesday.
“We expect an IPO or sale of a minority stake in the interactive business would be the most likely course of action, with proceeds likely going toward deleveraging [the parent] – primarily near-term maturities,” Mr DeCree stated.
He added: “Overall, we believe the move highlights the value of the burgeoning interactive business and puts a higher floor on the equity valuation of the shares.”
Telsey Advisory Group LLC analyst David Katz shared a similar opinion regarding the announcement by Scientific Games.
He wrote in a Wednesday note: “Overall, the strategy is appropriate and positive for the company given the presently high trading level for similar businesses, and it is prudent for all companies with holdings in the interactive business to explore the prospects for value capture at this time. We believe there is a wide range of options for Scientific Games to pursue, and the shares should be supported positively in the near term, pending a more specific outcome.”
On the land-based gaming front, Scientific Games announced last week a definitive agreement to acquire Canadian gaming supplier DEQ Systems Corp. The latter company provides table-game-bonusing technology, table games, baccarat results tracking and jackpot connectivity products to more than 300 casinos in 30 countries, according to its corporate website.
Scientific Games earlier in August announced Mr Sheehan as the company’s new chief executive and president, replacing Gavin Isaacs.
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”We expect Goa to quickly become a US$1 billion market as it transitions to land-based casinos (from US$150 million today), which is still just a fraction of India’s total GGR potential of US$10 billion to US$17 billion”
Analyst at Union Gaming Securities Asia