Scientific Games strategic review
Open questions: The company has decided to divest its lottery and sports-betting businesses in order to rapidly shrink its long-term debt and zero in on a more gaming-focused entity. Each business will be either sold, separately listed via an IPO or using the SPAC route and the news immediately set the hare running on the most likely outcomes for both businesses. Most of the speculation surrounded the future of the sports-betting business, which includes among its clients for at least some of its services the likes of Flutter, Entain, WynnBet and Golden Nugget. Analysts at Jefferies said the unit “should have high desirability in the current environment” and should trade for between 12-14x LTM revenue while the comparatives for the lottery business would suggest a multiple of 10-12x trailing EBITDA. Jefferies priced the proceeds from both sales/floats at $5.6bn.
Feel the Burns: The biggest question appears to hinge on whether one of those erstwhile clients would be interested in bringing the platform in-house or whether an existing supplier, potentially in another vertical, might wish to add a somewhat respected sports platform to their offer. One notable corporate name on the ticket is Oakvale Capital (principal partner Daniel Burns), which has been involved in some high-profile gaming and betting-related corporate actions in recent years including the sale of Big Time Gaming to Evolution and the Genius Sports SPAC. Also doubtless taking notes right now is the Tekkorp SPAC headed by ex-SG CEO Matt Davey. The company itself said little during the earnings call on either the timing or the quantum of the processes.
“We are far enough along in the process that it made sense to get it out there,” said CFO Mike Eklund. “Today is about getting everyone aligned internally. Plus we believe we can get this to a logical conclusion very soon.”
Reconstruction time again: One trend noted by the analysts at Truist that will play into the sale/IPO process is the current trend among operators to unbundle their procurement processes with “more decisions based on quality of each product.” Should the de-consolidation be successfully executed, Truist said it will turn attention to similar movies at IGT and Everi. “Concurrently, we could see even more attempts for more cohesive M&A (e.g. around similar digital and content thematics),” they added.
Debt forgiveness: The goal of lessening the debt servicing is clearly a top priority for SG. In the recent Q1 earnings presentation the company said net debt stood at $8.5bn and interest expense in the quarter was $124m. Jefferies noted that the hoped-for $5.6bn influx of cash could see Scientific Games reduce its net debt ratio to 2.4x.
Jeux sans frontières: As for the remaining integrated gaming business, the company made it plain it hoped for more from iGaming and saw opportunities for further mining of the omni-channel seam. “We will be a cross-platform global game company,” said Barry Cottle, President and CEO. “Collectively, we are well along on this journey. Layer on that a rapidly de-leveraged balance sheet, (and) we will be a more nimble and flexible organisation.” Truist suggested the deal sets Scientific Games up “nicely” for more M&A.
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- Spanish Q1 GGR
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