Accel Entertainment Buys Fairmont Holdings for $35M in Stock

Posted on: July 16, 2024, 03:49h. 

Last updated on: July 16, 2024, 03:49h.

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

Accel Entertainment (NYSE: ACEL) announced the acquisition of Fairmont Holdings for $35 million in equity, adding a horse racetrack to the video gaming terminal (VGT) firm’s portfolio of assets.

Accel
Horses break from the starting gate during a race at FanDuel Sportsbook & Horse Racing in Collinsville, Ill. Accel Entertainment is acquiring operator Fairmont Holdings for $35 million in stock. (Image: YouTube)

Privately held Fairmont owns FanDuel Sportsbook & Horse Racing in Collinsville, Ill. The venue has 65 live race days and 435 horse races per year. The track is nearly a century old and was rebranded as FanDuel Sportsbook & Horse Racing in 2020. Accel is one of the largest distributed gaming operators in the US. Last year, Fairmont posted $29 million in sales and “modest earnings before interest, taxes, depreciation, and amortization (EBITDA).”

Accel plans to invest $85 – $95 million (over and above the purchase price) to fund temporary and then permanent casino construction and modest track investments. Accel’s five-year forecast suggests an Adjusted EBITDA potential of $20 to $25 million and over 75% free cash flow conversion — pointing to a compelling cash flow return on capital,” according to a statement issued by the two companies.

Accel is a provider of video gaming terminals (VGTs) in Illinois and several other states. Accel’s VGTs are found in businesses such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops, and grocery stores.

Fairmont Deal Fits Accel Acquisition Profile

The Fairmont transaction jibes with Accel’s track record of bolt-on acquisitions that expand the buyer’s route-based capabilities. With Fairmont, the suitor accomplishes while spreading its wings into another corner of the broader gaming industry.

Plus, there are geographic advantages with FanDuel Sportsbook & Horse Racing being the only horse racing property near the St. Louis area. Post-acquisition plans call for a temporary casino to be built at the site next year with a permanent brick-and-mortar casino to follow in 2027. Accel is expected to make a significant capital contribution to that project. The gaming venue will feature 500 machines, 24 tables, and a sportsbook.

“The transaction has two parts — acquisition of Fairmount, the holder of the license and owner of the underlying site assets, for approximately $35 million of equity consideration, and $85 – $95 million of expected casino build-out and track investments funded from Accel’s credit facility,” according to the statement.

Accel is forecasting “attractive return on capital” via the transaction, which is scheduled to close in the fourth quarter.

Deal Could Provide Runway for Future Growth

In aggregate, Illinois is one of the largest gaming markets in the country, but in Southern Illinois/St. Louis area, there is fragmentation and many of the operators are smaller independents, indicating there’s some room for consolidation. That could be to Accel’s benefit.

“This transaction accesses a ‘local gaming’ total addressable market (TAM) estimated to be approximately $15 billion in size — or more than twice our existing route-based TAM,” according to the company. “Local gaming assets remain largely unconsolidated, under family or small business ownership, and far less often contested by larger gaming players.”

Accel did not mention if the casino would bear the FanDuel — one of the most valuable in the gaming industry — but is attached to another casino in Illinois.