425: IGT to Merge Global Gaming and PlayDigital with Everi, Creating Gaming & FinTech Giant

International Game Technology PLC (IGT) will spin off its Global Gaming and PlayDigital businesses and merge them with Everi Holdings Inc. to create a comprehensive global gaming and FinTech enterprise.

Summary

• IGT is separating its Global Gaming and PlayDigital (SpinCo) businesses from its Global Lottery business.
• SpinCo will merge with Everi (MergeCo).
• IGT PLC shareholders will receive approximately 54% ownership of MergeCo, while Everi shareholders will own approximately 46%.
• IGT PLC will receive a cash distribution of approximately $2.6 billion from debt raised by MergeCo.
• The transaction is valued at approximately $4.0 billion for SpinCo and $2.2 billion for Everi on an enterprise value basis.
• The combined company, to be named International Game Technology and trade as IGT on the NYSE, will be headquartered in Las Vegas, Nevada.
• Approximately $85 million in run-rate cost and CapEx synergies are expected by year three.
• MergeCo plans to raise $3.7 billion in debt to refinance existing debt and pay the distribution to IGT PLC.
• Pro Forma Net Debt / Adjusted EBITDA is expected to be 3.2x 3.4x at closing.
• IGT PLC intends to use the proceeds from the ~$2.2 billion net distribution to repay existing debt and for general corporate purposes.
• Pro Forma Net Debt / Adjusted EBITDA for IGT PLC is expected to be ~2.5x shortly after closing.
• The transaction is expected to close in late 2024/early 2025.

Sentiment

Score: 7

Explanation: The document presents a positive outlook on the merger, highlighting synergies, growth potential, and shareholder value creation. However, the debt financing and regulatory hurdles introduce some uncertainty.

Positives

• The merger creates two pure-play businesses with best-in-class management teams.
• It facilitates more focused operating and capital allocation strategies.
• Each business can pursue enhanced organic and inorganic growth strategies.
• IGT shareholders retain the predictable lottery business while participating in the higher growth potential of the gaming and digital business.
• The transaction unlocks shareholder value by creating two best-in-class global companies.
• The combined company will have a strong balance sheet and substantial cash flow generation.
• The combined company is expected to have compelling revenue and accretive Adjusted EBITDA growth.
• The combined company will have an attractive revenue model with 60+% recurring revenue.
• Significant synergies are expected to enhance revenue and profit growth potential.
• The transaction allows for investment in both organic and inorganic growth, significant debt repayment, and share buybacks.

Negatives

• MergeCo will take on $3.7 billion of debt to finance the transaction.
• The transaction is subject to regulatory and shareholder approvals, which could delay or prevent the closing.
• There are risks related to the ability to realize the anticipated benefits of the Proposed Transaction, including the possibility that 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.

Risks

• The transaction is subject to regulatory approvals, including antitrust, foreign direct investment, gaming, and financial services license applications and approvals.
• The transaction is subject to shareholder approval by IGT PLC and Everi shareholders.
• There are risks related to the ability to realize the anticipated benefits of the Proposed Transaction.
• There are risks related to competition in the gaming and lottery industry.
• There are risks related to intellectual property, privacy matters, and cyber security.
• Economic changes in global markets, such as currency exchange, inflation and interest rates, and recession could impact the transaction.
• 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 could impact the transaction.

Future Outlook

The combined company is expected to achieve mid-single digit revenue CAGR and high-single digit Adjusted EBITDA CAGR through 2026, driven by organic growth, synergies, and expansion into new markets and categories.

Management Comments

• Successful conclusion of strategic review: IGT to separate Global Gaming and PlayDigital (SpinCo) from Global Lottery and merge SpinCo into Everi (MergeCo).

Industry Context

This merger reflects a trend towards consolidation in the gaming and FinTech industries, as companies seek to expand their product offerings, reach new markets, and achieve greater economies of scale. The combined company will be a significant player in the global gaming and FinTech market, competing with companies such as Scientific Games, Aristocrat Leisure, and Light & Wonder.

Comparison to Industry Standards

• The projected synergies of $85 million are significant and in line with other mergers of this size in the gaming industry.
• The pro forma net debt leverage of 3.2x 3.4x for MergeCo is within a reasonable range for leveraged buyouts in the current market environment.
• The expected closing date in late 2024/early 2025 is typical for transactions of this complexity, given the need for regulatory and shareholder approvals.

Management Changes

Stakeholder Impact

• Shareholders of IGT and Everi will be impacted by the ownership structure of the combined company.
• Employees of IGT and Everi may be impacted by potential synergies and restructuring.
• Customers of IGT and Everi may benefit from the combined company's expanded product offerings and capabilities.
• Suppliers of IGT and Everi may be impacted by potential supply chain optimization.
• Creditors of IGT and Everi will be impacted by the debt financing of the transaction.

Next Steps

• Obtain regulatory approvals, including antitrust, foreign direct investment, gaming, and financial services license applications and approvals.
• IGT PLC shareholder vote on distribution of SpinCo shares.
• Everi shareholder vote on the transaction.
• Close the transaction in late 2024/early 2025.

Key Dates