An analyst believes that the merger between IGT and Everi could yield crucial scale.
In a major move within the gaming industry this year, International Game Technology (NYSE: IGT) revealed a merger of its global gaming and PlayDigital divisions with Everi (NYSE: EVRI) in a $6.2 billion deal.
Typically, mergers transpire due to the pursuit of cost savings or the fusion of research and development initiatives. According to Truist analyst Barry Jonas, however, the IGT/Everi union might be what's necessary to hold their own in the ever-intensifying gaming device market.
Both sides recognized the potential pitfalls of the "1 + 1 doesn't equal 3" phenomenon but emphasized that this transaction is not centered on cutting expenditures or consolidating R&D dollars. Instead, the significance of scale is critical in spotlighting opportunities for success within the slot machine and cabinet fabrication sectors. After meetings with various slot machine manufacturers in Las Vegas, Jonas penned a report detailing the importance of scale in optimizing potential.
As per the agreement stipulations, IGT investors can look forward to owning a 54% stake in the unified company, while Everi shareholders will maintain control over the rest. The consolidation is earmarked for completion later in 2024 or in the early months of 2025.
Benefits of IGT/Everi Merger
While this marriage of IGT's global gaming and PlayDigital operations with Everi is not primarily motivated by cost savings, Jonas noted that the management anticipates $75 million in benefits from that department alone, which could turn out to be a conservative estimate.
Additional benefits include an expanded slots game scale and increased presence in fintech, iGaming, and sports betting sectors under a solitary, vertically integrated platform. This scenario would allow the freshly forged corporation to hit an annual sales mark of $2.7 billion as early as 2024.
Significantly, the deal joins Everi's Class II gaming device exposure and regional prominence in markets that IGT lags behind with IGT's dominance in Class III machines. This blending could entice casino operator clients seeking a single provider for fintech expansion and slot machine acquisition.
"The companies believe they can successfully swap their more successful games across different markets/classes (including global)," highlighted Jonas.
Potential Lottery Concerns for IGT
Although the fusion with Everi was perceived as an attempted resolution to the IGT lottery narrative, Jonas disclosed that management conveyed worries about the potential for MegaMillions ticket prices to surge.
"Although management couldn't directly comment on recent lottery trade rumors about MegaMillions increasing its ticket prices next year, (they) did mention that the influence of higher ticket prices on IGT could be substantial," noted the analyst.
This topic is significant as lottery represents 75% of IGT's potential earnings. With the announcement of the Everi partnership in February, IGT asserted that the merger would make their lottery division a "premier pure play."
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Source: www.casino.org
