Scientific Games Pares SG Lottery Australia IPO to $3B, Still 15x 2022 Fiscal Earnings

Posted on: October 21, 2021, 09:27h. 

Last updated on: October 21, 2021, 09:41h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Scientific Games (NASDAQ:SGMS) is reportedly trimming the size of a Sydney initial public offering (IPO) for its SG Lottery arm to $3 billion, valuing it at roughly 15x fiscal 2022 earnings.

SG Lottery
Scientific Games cuts size of SG Lottery IPO. However, the company could still sell the business to a suitor. (Image: Seeking Alpha)

Previous speculation mentioned the Las Vegas-based company could raise up to $5 billion. But sources familiar with the matter said a haircut is necessary.

Given that it would be such a big offering — Australia’s largest in seven years — a discount was justified, said one of the people. The current price on offer represents a multiple of about 15 times its fiscal 2022 earnings, the two sources said. That compares with the valuation proposed previously of up to 22 times,” reports Reuters.

Even at 15x earnings, SG Lottery could debut with a market capitalization in the $6 billion area. That’s well in excess of prior estimates. SG Lottery generated $430 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the 12 months ending June 30.

If it proceeds with the Australia IPO, Las Vegas-based Scientific Games is expected to sell 51 percent of SG Lottery, meaning the parent company retains a minority stake. Under an agreement with brokers, the slot machine manufacturer could sell up to 56 percent of the lottery business, thereby raising $3.14 billion.

Scientific Games Yet to Confirm Australia Plans

In early July, Scientific Games said it’s parting with the lottery unit and its sports wagering platform business. The latter was recently sold for $1.2 billion.

At that time, the company noted the transactions could materialize in the form of an initial public offering (IPO), a merger with a special purpose acquisition company (SPAC), or an outright sale or combination with another firm. Scientific Games hasn’t officially confirmed that SG Lottery will be listed in Sydney and it’s possible a suitor emerges to buy the business outright.

Private equity firms Apollo Global Management (NYSE:APO), Carlyle Group, and TPG Capital are said to be considering bids for SG Lottery. Though it’s not clear if formal offers have been made.

Rumors regarding the Australia IPO recently intensified because some Scientific Games executives have ties to the country, and it’s believed investors there are more familiar with this type of business. That more receptive audience could be an asset in terms of elevated demand for the shares. SG Lottery generates the bulk of its earnings and revenue in North America and Europe.

SG Lottery Decision Could Be Imminent

Chatter regarding the fate of SG Lottery is intensifying, and some market participants are wagering it’s just a matter of days before Scientific Games makes a decision.

It’s expected the company is currently fielding bids for the lottery unit from would-be suitors. It will take the weekend to weigh those offers against the IPO plan and could make an announcement as early as next week, according to Reuters.

Recently, Scientific Games said the lottery segment will sport a compound annual growth rate (CAGR) of 13.6 percent through 2022.

In addition to controlling more than two-thirds of the global instant lottery (scratchers) market, SG Lottery also has a 13 percent share in the still-nascent, though fast-growing, internet lottery arena, according to the parent company.