According to Acies Co-founder and Co-CIO Edward King, mergers and acquisitions have shaped the gaming industry from its inception. But in the third decade of the 21st century, M&A deals are increasingly complex and subject to increased scrutiny.
“This is one of the most active spaces for private equity,” said King during the education session “Game On: The Resurgence of Global Gaming M&A” during the Global Gaming Expo Monday at the Venetian Expo in Las Vegas.
King, who moderated the session, mentioned that there were 17 SPAC (special-purpose acquisition company) transactions in the gaming market over the past year.
“The revenues since COVID have been really strong across the space,” said Jefferies Managing Director Andrew Zarnett. “Really across the space, whether it be online or sports-betting brick-and-mortar, be it Las Vegas or regional. And I think it’s probably safe to say most days, it’s the strongest of all. The pricing dynamic is incredibly attractive to the operator, not so much for the consumer.”
Zarnett admitted that over the last few months, regional demand has “fluttered” up and down. Credit-card debt has expanded, affecting players deemed “mid-ward to mid-ward down.”
“Consumers are definitely impacted by inflation rates over the past few years,” said Light & Wonder Chief Financial Officer-Americas Shannon Demus. “But that’s not the core demographic that keeps coming to our sites. We’re not seeing this massive impact over here.”
Tekkorp Capital Founder and Chairman Matt Davey noted that Las Vegas businesses and restaurants are doing well. He noted that businesses, particularly tech companies, are still seeking capital to expand. The issue is that they’re having trouble acquiring it, despite the industry’s overall health. “They’re having a hard time capturing capital, because investors are worried about the increased rates and the impact that’s going to have, potentially, on consumers.”
There is still, however, a market for M&A, given the right conditions and circumstances. Zarnett noted that one element influencing deals is that debt capital has become more affordable in recent months.
“Some people have been able to refinance their existing debt, because the fundamentals have changed for them,” Zarnett noted. Plus, rates have come down and the market is strong right now, depending on the quality of the asset and the condition of the company. “And the last thing is where your stock trades. If your stock trades, that will help you make it work numerically if you’re purchasing an asset.”
It is also helpful if a company can focus on what it does best. Demus says that a few years ago, Light & Wonder was a “confused company” with multiple interests and an “appalling balance sheet.”
“Our management team sat down and did a strategic review to figure out where we should go from here,” Demus said. “Who are we? What are we aspiring to do? That’s when we started looking at divesting our business. I think that’s been the key to setting us up for success.
“So now that we’ve managed to divest those businesses, we’ve figured out truly our core and what we aspire to be. Now we can start making moves and I think we’re in position not to jump into things. Too many companies have jumped on the next good-looking opportunity. We’re taking our time trying to figure out what the environment is and then also how to look at these companies.”
Rege Behe is lead contributor to CDC Gaming. He can be reached at rbehe@cdcgaming.com. Please follow @RegeBehe_exPTR on Twitter.
