IGT/Everi Merger Could Deliver Vital Scale, Says Analyst

Posted on: May 21, 2024, 04:34h. 

Last updated on: May 22, 2024, 10:04h.

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

In what remains one of the largest gaming industry transactions to this point in 2024, International Game Technology (NYSE: IGT) announced in February the merger of its global gaming and PlayDigital units with Everi (NYSE: EVRI) in a $6.2 billion transaction.

Everi Venuetize
The Everi Holdings booth at the 2019 Global Gaming Expo in Las Vegas. An analyst is constructive on the merger with IGT. (Image: Getty Images)

Often, mergers are born out of a desire for cost efficiencies or combining research and development platforms, but Truist analyst Barry Jonas said the IGT/Everi combination could provide the scale needed to compete in the increasingly competitive gaming device space.

Both management teams were cognizant that 1 + 1 historically has not equaled 3 … However, both stressed this deal is not about cost synergies or saving R&D dollars. The importance of scale in slot-game and cabinet manufacturing is essential in order to maximize shots on goal,” wrote Jonas in a report following meetings in Las Vegas with several slot machine manufacturers.

Under the terms of the transaction, IGT investors will own 54% of the new company, while Everi shareholders will control the remainder. The merger is expected to close late this year or in early 2025.

IGT/Everi Merger Offers Some Synergies

While the marriage of IGT’s global gaming and PlayDigital with Everi isn’t rooted in cost savings, Jonas noted management expects $75 million in such benefits – an estimate that could ultimately prove conservative.

Other benefits include added slots scale and fintech, iGaming, and sports betting exposure under a single, vertically integrated umbrella. Under that scenario, the newly formed company could generate sales of $2.7 billion as soon as this year.

Importantly, the transaction combines Everi’s Class II gaming device exposure and footprints in regions in which IGT isn’t dominant with IGT leadership in Class III machines. That combination could be attractive to casino operator clients who are increasingly favoring one-stop shopping when it comes to fintech expansion and slot purchases.

“The companies believe they can have success porting each other’s more successful games across different markets/classes (including international),” added Jonas.

Potential Lottery Issue Lingering for IGT

The deal with Everi was seen as cleaning up the IGT lottery thesis and that may ultimately prove to be true, but Jonas said that management expressed some concern about the possibility of MegaMillions ticket prices being raised.

While management couldn’t directly comment on recent lottery trade reports that Mega Millions could increase its ticket pricing next year, (they) did say that the impact to IGT from higher ticket pricing could be significant,” observed the analyst.

That’s relevant because lottery accounts for 75% of IGT’s pro forma earnings. Upon announcing the deal with Everi in February, IGT said the merger would help the lottery unit become a “premier pure play.”