International Game Technology (IGT) emerged as a leading gaming stock last Thursday, as it experienced a sharp upswing in the stock market following speculation about Apollo Global Management’s potential bid for IGT’s global gaming division.
Emboldened by the report, IGT shares hit a remarkable surge of 10.45% on Thursday, witnessing more than thrice the regular trade volume. The spurt effectively stretches the stock’s year-to-year expansion to an impressive 46.38%. While Apollo Global Management has been recognized as one of the potential contenders for IGT’s global gaming unit, there has been no revelation about other prospective parties.
Based on the unnamed sources possessing knowledge on the subject, it is conceivable that IGT could yield between $4 billion and $5 billion, inclusive of debt, in a transaction related to the unit that comprises their slot machine division. Given that the company closed at a market capitalization of $6.02 billion on the same day, even the lower end estimate reflects a substantial advantage for the seller. It is an indication that the investment world has failed to grant adequate value to the prowess of IGT’s global gaming division.
In June, IGT announced its consideration of strategic alternatives for its global gaming and PlayDigital units. This development could offer a clearer view of the overall investment undertone and put a spotlight on the profitable lottery segment of the company. As per IGT’s announcement, no fixed timeline was set for any transactional engagement.
The lottery vertical, responsible for approximately 75% of pro-forma earnings, constitutes a major source of income before the deduction of interest, taxes, depreciation, and amortization (EBITDA), and is comparatively undervalued when pitted against competitive assets. Market analysts uphold that bundled lottery assets such as IGT’s often fail to secure due recognition from investors.
IGT, by divesting its global gaming and PlayDigital wings, could possibly realign its investment perspective, thereby attracting a wider spectrum of market participants.
While no potential purchasers for PlayDigital have been named as of now, IGT has previously flagged that it might continue to own PlayDigital along with the global gaming unit, or possibly segregate them rather than handing them over to other companies.
The conjectured interest of Apollo in the global gaming division of IGT is practical, given that Apollo controls other gaming assets and has been linked to multiple industry consolidation rumours in recent years.
Furthermore, even at the estimated price band of $4 billion to $5 billion, a potential buyer would be securing IGT’s slot machine division at a remarkable valuation and at a substantial discount compared to contractual trades made by Aristocrat Leisure, which holds supremacy in the high-end slot category and is a direct competitor to IGIT.
Apollo holds considerable experience in slot machine management, being a previous major shareholder in PlayAGS. The private equity firm also operates the Venetian on the Las Vegas Strip.
