8-K: Accel Entertainment to Acquire Fairmount Holdings, Expanding Local Gaming Footprint

Accel Entertainment is set to acquire Fairmount Holdings, owner of FanDuel Sportsbook & Horse Racing, for approximately $35 million in stock, marking a strategic move into single-site local gaming.

Summary

• Accel Entertainment has agreed to acquire Fairmount Holdings, which owns the FanDuel Sportsbook & Horse Racing in Collinsville, Illinois.
• The acquisition will be completed through the issuance of 3,456,119 shares of Accel's Class A-1 common stock, valued at approximately $35 million, subject to adjustments.
• Fairmount generated $29 million in revenue and a modest Adjusted EBITDA in 2023.
• Accel plans to invest an additional $85 to $95 million to develop temporary and permanent casino facilities at the site.
• The company estimates the acquisition will lead to an Adjusted EBITDA potential of $20 to $25 million within five years, with over 75% free cash flow conversion.
• The transaction is expected to close by the end of 2024, pending regulatory approvals.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook on the acquisition, highlighting strategic benefits, growth potential, and financial projections. The tone is optimistic and confident, suggesting a strong positive sentiment from an investment perspective.

Positives

• The acquisition provides Accel with a strategic entry into the single-site local gaming market.
• Fairmount's existing horse racing operations and sports betting partnership with FanDuel offer immediate revenue streams.
• The planned casino development presents a significant growth opportunity.
• Accel's expertise in player experience, cash logistics, and regulatory compliance is expected to enhance Fairmount's operations.
• The transaction is expected to be accretive to Accel's long-term financial model.

Negatives

• The acquisition requires a significant upfront investment of $85 to $95 million for casino development.
• The projected Adjusted EBITDA of $20 to $25 million is an estimate and may not be achieved.
• The transaction is subject to regulatory approvals, which could cause delays or prevent the deal from closing.
• The integration of Fairmount's operations with Accel's may present challenges.

Risks

• The transaction may not be completed in a timely manner or at all.
• Accel may not be able to successfully integrate Fairmount's operations.
• The casino development may not be completed on time or within budget.
• The projected financial results may not be achieved.
• Changes in gaming regulations could impact the profitability of the acquisition.

Future Outlook

Accel anticipates the acquisition will accelerate its long-term financial model with high return growth at accretive margins and expects the asset to be the cornerstone in a local gaming platform.

Management Comments

• Andy Rubenstein, Accel co-founder, President, CEO and Director, stated they are excited to partner with Bill Stiritz and Rob Vitale to deploy their local gaming expertise.
• William Stiritz noted they couldn't have found better partners than Andy and his team.
• Rob Vitale said they sought strategically aligned, well capitalized and proven operators in the local gaming space and Accel is the ideal fit.

Industry Context

This acquisition reflects a trend of consolidation in the local gaming market, where smaller, family-owned businesses are seeking partnerships with larger, more experienced operators. Accel's move into single-site gaming complements its existing route-based business model.

Comparison to Industry Standards

• Accel's acquisition of Fairmount is a move into the local gaming market, which is estimated to be a $15 billion total addressable market, more than twice the size of its existing route-based market.
• The company is leveraging its expertise in player experience, cash logistics, and regulatory compliance, similar to how it operates its distributed gaming business.
• The projected Adjusted EBITDA of $20 to $25 million within five years is a significant increase from Fairmount's current performance, indicating a potential for high return on investment.
• The acquisition is structured as an all-equity deal, which is common in the gaming industry for strategic acquisitions.
• The engagement of industry veterans like Tony Rodio and Holly Gagnon for casino development and operations is a common practice to ensure successful project execution.

Stakeholder Impact

• Shareholders of Accel will see a potential increase in value through the acquisition's growth prospects.
• Employees of Fairmount will become part of Accel, with potential changes in benefits and compensation.
• Customers of Fairmount will experience improvements in facilities and services.
• The local community in Collinsville, Illinois, is expected to benefit from job creation and economic development.

Next Steps

• Accel will seek regulatory approvals from the Illinois Racing Board and the Illinois Gaming Board.
• Accel will proceed with the development of temporary and permanent casino facilities.
• Accel will integrate Fairmount's operations into its existing business.
• Accel will continue to support Fairmount's horse racing operations.
• Accel will work with partners to enhance the food and beverage offerings at the site.

Key Dates

Keywords

Accel Entertainment, Fairmount Holdings, FanDuel Sportsbook, Horse Racing, Casino, Gaming, Acquisition, Local Gaming, Illinois, Sports Betting