Scientific Games to buy rival Bally Technologies

October 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

The consolidation of the US gaming industry continued in August when slot machine manufacturer Scientific Games Corp agreed to acquire rival firm Bally Technologies in a deal worth around $3.27bn.

Under the terms of the deal, Scientific Games will pay $83.30 per share for Bally Tech. Scientific Games’ all cash offer for the firm represented a 38 percent premium on Bally Tech’s closing price of $60.17 on Thursday 31 July, the last day of trading before the acquisition was announced. The total deal value is approximately $5.1bn, including the assumption of Bally Tech’s existing net debt of $1.8bn.

According to a statement announcing the acquisition, Scientific Games intends to finance the transaction by utilising cash on hand and committed debt financing which it has secured from a number of banks, including BofA Merrill Lynch, JP Morgan and Deutsche Bank Securities. The boards of both companies unanimously approved the transaction, and although the acquisition is still subject to customary closing conditions, including receipt of Bally Tech’s shareholder approval and gaming regulatory approvals, both firms expect the merger to be completed in early 2015. Scientific Games has confirmed that once the deal has been completed Bally will continue to operate as a wholly owned subsidiary of the firm.

Scientific Games, which has a large operation in the US, as well as a presence in Spain, China, England, Canada, Austria and Chile, will use the acquisition of Bally Tech to expand its offerings in Asia, Australia and other developing markets where the firm has a smaller established presence. “The acquisition of Bally provides us with a unique opportunity to combine two exceptional companies with long track records of creating leading-edge games and gaming technology products for players and delivering innovative solutions to our customers,” said Gavin Isaacs, Scientific Games’ president and chief executive. “With leading gaming, lottery, and interactive content, world-class systems capabilities and table game offerings, we believe that the combined company will be uniquely positioned as a strategic partner for gaming and lottery operators, offering a highly diversified suite of value-enhancing products and services across multiple worldwide distribution channels and platforms.” Immediately following the announcement of the deal, shares in Bally Tech leapt by around 40 percent to a record of $84.66. Scientific Games’ shares rose 3 percent to $8.78.

Scientific Games expects the deal to generate annual cost synergies of around $220m and annual capital expenditure savings of approximately $25m by the end of the second year following the closing of the transaction. Once the deal has been completed Mr Isaacs will continue to serve as president and chief executive of the newly merged firm. Richard Haddrill, Bally’s chief executive, and David Robbins, its chairman, will join the new Scientific Games board; Mr Haddrill will serve as vice chairman.

There has been considerable consolidation in the gaming sector in recent years. The acquisition of Bally Tech is the second purchase that Scientific Games has made in less than a year which is valued at more than $1bn. In autumn 2013 the firm acquired gambling equipment company WMS Industries Inc in a deal worth approximately $1.42bn. In 2010 and 2011, Scientific Games also completed deals for a number of other companies, including the Barcrest Group Limited, Sceptre Leisure Solutions and GameLogic.

Las Vegas based Bally also acquired a rival casino device company in 2013, SHFL Entertainment Inc. The deal for SHFL was valued at $1.3bn including debt. M&A activity in the gambling equipment sector has picked up considerably in recent years. Firms in the sector have begun to face up to a number of challenges including weaker consumer spending, an abundance of new casinos and greatly increased competition from web and mobile competitors. Accordingly, firms in the gaming space have begun turning to M&A to drive growth. In August, Gtech SpA (GTK) agreed to buy rival firm International Game Technology in a notable cash and stock deal worth approximately $4.7bn.

Richard Summerfield