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, 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 be rebranded 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 remaining Lottery business will receive approximately $2.6 billion in cash.
• Post-closing, 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 for the merged company.
• Annualized run-rate synergies of $75 million and an additional $10 million in CapEx savings are expected by the end of the third year post-closing.
• The combined 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 in the range of 3.2x to 3.4x pro forma expected 2024 adjusted EBITDA.
• Pro forma 2024 revenue is projected at $2.7 billion, with a mid-single-digit compound annual growth rate 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 transaction is expected to close in late 2024 or early 2025.

Sentiment

Score: 8

Explanation: The document presents a positive outlook for the merger, highlighting the potential synergies, growth opportunities, and financial benefits. The management commentary is optimistic, and the overall tone suggests confidence in the success of the transaction.

Positives

• The merger creates a comprehensive B2B product portfolio, a one-stop shop for gaming and FinTech needs.
• The combined business has an attractive recurring revenue model, with over 60% of pro forma revenue from recurring streams.
• The growth outlook is compelling, with expected mid-single-digit revenue growth and high single-digit adjusted EBITDA growth through 2026.
• Improved cash flow should allow for investments in organic and inorganic growth, debt repayment, and share buybacks.
• The company will have a best-in-class team with long-standing industry knowledge and a proven track record.
• The combination of IGT's Global Gaming and PlayDigital with Everi's games and FinTech businesses will increase the scope of capabilities.
• The combined studio network ensures significant ongoing R&D capabilities to develop top content across categories.
• The integration of Everi's FinTech business with IGT systems can seamlessly connect patrons with casino customers, reducing friction and improving the patron experience.
• The modest leverage profile and high cash flow generation allows for a balanced capital allocation strategy.

Negatives

• The transaction is subject to regulatory and shareholder approvals, which could delay or prevent the closing.
• The combined company will take on $3.7 billion in debt to finance the transaction, increasing its financial leverage.
• There is a risk that the anticipated synergies and cost savings may not be fully realized or may take longer to achieve than expected.
• The integration of two large organizations can be complex and may lead to unforeseen challenges.

Risks

• The transaction is subject to regulatory approvals and shareholder votes, which could delay or prevent the closing.
• Failure to achieve the expected synergies and cost savings could negatively impact the financial performance of the combined company.
• Integration challenges could arise from combining two different corporate cultures and business processes.
• Increased debt levels could limit the company's financial flexibility and ability to invest in future growth.
• Changes in the gaming industry, such as increased competition or regulatory changes, could impact the combined company's performance.
• The company is exposed to risks associated with the global economy, such as currency exchange rates, inflation, and interest rates.

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. They plan to invest in organic and inorganic growth, debt repayment, and share buybacks.

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. The combination of IGT's gaming expertise with Everi's FinTech solutions positions the new company to compete more effectively in the evolving gaming landscape.

Comparison to Industry Standards

• The combined company will be a major player in the gaming and FinTech industries, competing with companies like Scientific Games (now Light & Wonder) and Aristocrat Leisure.
• The pro forma revenue of $2.7 billion would place the combined company among the top gaming suppliers globally.
• The expected synergies of $75 million are in line with typical cost savings achieved in similar mergers.
• The pro forma net leverage of 3.2x to 3.4x is within a reasonable range for a company of this size and industry.

Management Changes

Stakeholder Impact

• Shareholders of IGT and Everi will be impacted by the merger, with IGT shareholders receiving shares in the combined company and Everi shareholders seeing a change in ownership structure.
• Employees of both companies may be affected by potential job redundancies or changes in roles and responsibilities.
• Customers of both companies will benefit from a broader product portfolio and enhanced service offerings.
• Suppliers of both companies may be impacted by potential changes in procurement strategies and supply chain optimization.
• Creditors of both companies will be affected by the new debt structure and the combined company's ability to repay its obligations.

Next Steps

• Obtain regulatory approvals.
• Obtain shareholder approvals from both IGT and Everi.
• Complete the debt financing.
• Close the transaction, expected in late 2024 or early 2025.
• Integrate the two businesses and achieve the expected synergies.

Key Dates