425: IGT to Merge Global Gaming and PlayDigital Businesses with Everi in $6 Billion Deal

IGT plans to spin off its Global Gaming and PlayDigital businesses and merge them with Everi's existing operations, creating a comprehensive Global Gaming and FinTech enterprise.

Summary

• IGT intends to spin off its Global Gaming and PlayDigital businesses and merge them with Everi's existing operations.
• The combined company will rebrand as International Game Technology, Inc. and trade on the NYSE under the ticker IGT.
• IGT shareholders will receive 103.4 million shares of Everi, and the Lottery business will receive approximately $2.6 billion in cash.
• Post-merger, IGT shareholders will hold approximately 54% and Everi shareholders approximately 46% of the combined company.
• The transaction has an implied enterprise value of approximately $6 billion.
• The combined company expects $75 million in annualized run-rate synergies and $10 million in CapEx savings by the end of the third year post-closing.
• The merged company plans to raise $3.7 billion in debt to pay off existing Everi debt and distribute $2.6 billion to IGT's Lottery business.
• Pro forma net leverage at closing is expected to be 3.2x to 3.4x pro forma expected 2024 adjusted EBITDA.
• The transaction is expected to close in late 2024 or early 2025.
• Pro forma 2024 revenue is projected at $2.7 billion, with mid-single-digit compound annual growth through 2026.
• Pro forma adjusted EBITDA is projected at approximately $1 billion in 2024, growing at a high single-digit compound annual rate through 2026.
• The remaining IGT global Lottery business will have low pro forma net debt leverage of approximately 2.5x shortly following the closing of the transaction.

Sentiment

Score: 8

Explanation: The document presents a highly positive outlook on the merger, emphasizing synergies, growth opportunities, and the creation of a stronger, more diversified company. While there are inherent risks in any merger, the overall tone is optimistic and confident.

Positives

• The merger creates a comprehensive B2B product portfolio, a one-stop shop for customers land-based gaming, iGaming, sports betting, and FinTech needs.
• The business has an attractive recurring revenue model with recurring revenue streams from gaming operations, iGaming, and FinTech solutions representing over 60% of pro forma revenue.
• The growth outlook for the combined entity is compelling, with revenue expected to grow at a mid-single-digit compound annual rate through 2026.
• Improved cash flow should allow for investments in both organic and inorganic growth, significant debt repayment, and share buybacks.
• The company will have a best-in-class team with long-standing industry knowledge, relationships, and a proven track record in B2B gaming and FinTech.
• The combination of IGT's Global Gaming and PlayDigital with Everi's games and FinTech businesses will increase the scope of capabilities, creating a combined entity with a more diverse portfolio of products and services with strong recurring revenues.
• Complementary capabilities create an integrated omni-channel one-stop shop addressing all aspects of the gaming ecosystem.
• There is significant opportunity to leverage respective customer relationships to cross-sell the portfolio and support that with a superior customer service proposition.
• The combined studio network ensures significant ongoing R&D capabilities to develop top content across categories.
• The modest leverage profile and high cash flow generation allows for a balanced capital allocation strategy that includes investment in both organic and inorganic growth, significant debt repayment, and share buybacks.

Negatives

• The merged company plans to raise $3.7 billion in debt, increasing its financial leverage.
• The transaction is subject to regulatory and shareholder approvals, which could delay or prevent the merger.
• There is an estimated $100 million of tax leakage at the PLC level.
• The transaction is taxable to IGT shareholders as well, with an impact of approximately 30% of the fair market value of the distribution.

Risks

• The conditions to the consummation of the Proposed Transaction will not be satisfied.
• Everi and IGT may be unable to achieve the expected benefits, synergies and operating efficiencies in connection with the Proposed Transaction within the expected timeframes or at all and to successfully separate and/or integrate the Spinco Business.
• The ability to retain key personnel.
• Negative effects of the announcement or the consummation of the proposed acquisition on the market price of the capital stock of Everi and IGT and on Everis and IGTs operating results.
• Risks relating to the value of Everis shares to be issued in the Proposed Transaction.
• The occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement relating to the Proposed Transaction (the Merger Agreement).
• Changes in the extent and characteristics of the common stockholders of Everi and ordinary shareholders of IGT and its effect pursuant to the Merger Agreement for the Proposed Transaction on the number of shares of Everi common stock issuable pursuant to the Proposed Transaction, magnitude of the dividend payable to Everis stockholders pursuant to the Proposed Transaction and the extent of indebtedness to be incurred by Everi in connection with the Proposed Transaction.
• Significant transaction costs, fees, expenses and charges (including unknown liabilities and risks relating to any unforeseen changes to or the effects on liabilities, future capital expenditures, revenue, expenses, synergies, indebtedness, financial condition, losses and future prospects).
• Expected or targeted future financial and operating performance and results.
• Operating costs, customer loss, and business disruption (including, without limitation, difficulties in maintaining employee, customer, or other business, contractual, or operational relationships following the Proposed Transaction announcement or closing of the Proposed Transaction).
• Failure to consummate or delay in consummating the Proposed Transaction for any reason.
• Risks relating to any resurgence of the COVID-19 pandemic or similar public health crises.
• Risks related to competition in the gaming and lottery industry.
• Dependence on significant licensing arrangements, customers, or other third parties.
• Issues and costs arising from the separation and integration of acquired companies and businesses and the timing and impact of accounting adjustments.
• Risks related to the financing of the Proposed Transaction, Everis overall debt levels and its ability to repay principal and interest on its outstanding debt, including debt assumed or incurred in connection with the Proposed Transaction.
• Economic changes in global markets, such as currency exchange, inflation and interest rates, and recession.
• Government policies (including policy changes affecting the gaming industry, taxation, trade, tariffs, immigration, customs, and border actions) and other external factors that Everi and IGT cannot control.
• Regulation and litigation matters relating to the Proposed Transaction or otherwise impacting Everi, IGT, Spinco, the combined company or the gaming industry generally.
• Unanticipated liabilities of acquired businesses.
• Unanticipated adverse effects or liabilities from business divestitures.
• Effects on earnings of any significant impairment of goodwill or intangible assets.
• Risks related to intellectual property, privacy matters, and cyber security (including losses and other consequences from failures, breaches, attacks, or disclosures involving information technology infrastructure and data).
• Other business effects (including the effects of industry, market, economic, political, or regulatory conditions).

Future Outlook

The combined company expects mid-single-digit revenue growth and high single-digit adjusted EBITDA growth through 2026, driven by organic growth and synergies.

Management Comments

• Vince Sadusky: 'The combination of two robust gaming platforms with complementary capabilities and geographic footprints creates a comprehensive Global Gaming and FinTech enterprise that is stronger and more valuable together.'
• Randy Taylor: 'Combination of IGTs Global Gaming and PlayDigital, with Everis games and FinTech businesses, will increase the scope of our capabilities, creating a combined entity with a more diverse portfolio of products and services with strong recurring revenues.'

Industry Context

This merger reflects a trend towards consolidation in the gaming industry, with companies seeking to expand their product offerings and geographic reach to better compete in a dynamic market.

Comparison to Industry Standards

• The combined company aims to compete with industry giants like Scientific Games (now Light & Wonder) and Aristocrat Leisure, offering a broader range of products and services.
• The focus on recurring revenue streams aligns with industry best practices, providing a more stable and predictable financial performance.
• The synergy targets are in line with typical M&A expectations, but the success of integration will be crucial to achieving these goals.
• The combined company will have a larger R&D budget and more resources to develop innovative games and technologies, potentially leading to a competitive advantage.

Management Changes

Stakeholder Impact

• Shareholders of IGT and Everi will see a change in ownership structure and potential for increased value through synergies and growth.
• Employees of both companies may experience changes in roles and responsibilities as the organizations integrate.
• Customers will benefit from a broader range of products and services and potentially improved customer service.
• The combined company will have a stronger financial profile, potentially benefiting creditors.
• Suppliers may see changes in procurement processes and volumes as the companies combine their operations.

Next Steps

• Obtain regulatory approvals.
• Obtain shareholder approvals from both IGT and Everi.
• Complete the carveout of IGT's Global Gaming and PlayDigital businesses.
• Raise $3.7 billion in debt financing.
• Close the transaction in late 2024 or early 2025.
• Rebrand Everi Holdings as International Game Technology, Inc.

Key Dates