Aristocrat Leisure Buying NeoGames for $1.2B in Cash

Posted on: May 15, 2023, 12:47h. 

Last updated on: May 15, 2023, 05:44h.

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

Aristocrat Leisure (ASX: ALL), one of the largest slot machine manufacturers, is increasing its iGaming footprint with a $1.2 billion all-cash acquisition of NeoGames (NASDAQ: NGMS).

NeoGames
NeoGames’ IPO highlighted at the Nasdaq market site in 2020. Aristocrat Leisure is buying the firm for $1.2 billion in cash. (Image: NeoGames)

The deal announced late Sunday values NeoGames at $29.50 a share, or a 104% premium to the stock’s average closing price for the three months ending May 12. NeoGames operates internet lottery games in the US, Canada, and other markets worldwide.

Completion of the transaction is expected to occur within 12 months, and is contingent upon customary closing conditions, including receipt of regulatory approvals and the approval of NeoGames’ shareholders,” according to a statement. “NeoGames shareholders who hold a total of approximately 20,382,242 shares, representing approximately 61% of NeoGames’ outstanding shares, have executed a support agreement with Aristocrat pursuant to which they have irrevocably agreed to vote in favor of the transaction.”

NeoGames’ board of directors voted unanimously in favor of the takeover. Upon completion of the deal, the internet lottery firm will become a wholly owned subsidiary of Aristocrat.

Win-Win for Aristocrat, NeoGames Investors

With the takeover price representing a 130% premium to where NeoGames shares closed last Friday, recent investors in the stock are benefiting. The stock slid 10.77% on May 12 but is higher by 5.33% year-to-date.

“While we remain believers in the long-term, high-quality iLottery opportunity, the likely gradual rollout across the US, coupled with a difficult macro environment for illiquid stocks, presented a challenging outlook for near-to-medium-term price discovery,” wrote Stifel analyst Jeffrey Stantial in a Sunday note.

Stifel acted as an advisor to NeoGames. In the US, Michigan is the target’s top market, and NeoGames is also operational in New Hampshire, North Carolina, and Virginia and is pursuing iLottery contracts in Alaska, Connecticut, Maryland, Massachusetts, Missouri, Ohio, and Oregon.

As for Aristocrat, the Australian company lands an avenue for increasing its iGaming and online lottery footprint following the 2022 collapse of its attempted acquisition of Playtech (LSE: PTEC). Aristocrat may also be able to better leverage Aspire Global, which NeoGames acquired early last year. That Swedish company is a business-to-business technology solutions provider to online sports betting and casino operators. I

ts partners include well-known operators, such as 888 Holdings, Betfair, Entain, Flutter, and William Hill.

Aristocrat/NeoGames Deal Spotlights iLottery

While iLottery has been slow to take off relative to iGaming and online sports betting, it still offers a compelling growth trajectory — one highlighted by Aristocrat’s purchase of NeoGames. The acquisition could also be a boon for other companies with internet lottery exposure, including International Game Technology (NYSE: IGT).

We do see a vote of confidence in Aristocrat opting to diversify outside of the core casino business into iLottery. Hence, we argue the deal reads favorably for Buy-rated IGT, though acknowledging that iLottery remains a small piece of IGT’s revenue base,” added Stantial.

The NeoGames purchase also provides a runway for Aristocrat to better compete among US-centric rivals, including IGT and Light & Wonder (NASDAQ: LNW).