The gaming industry is witnessing a surge in mergers and acquisitions, with Bally's recently finalizing a £243 million ($326 million) takeover of Evoke. To gain insights into the implications of this deal, we consulted leading analysts in the gaming sector.
This acquisition follows recent moves by Barry Diller’s People Incorporated and Tilman Fertitta to take MGM Resorts and Caesars private, respectively. Fertitta, who is also the U.S. ambassador to Italy, owns the Golden Nugget and the Houston Rockets, in addition to a vast restaurant portfolio.
What’s driving this activity? Caesars has an enterprise value (EV) of $30 billion, primarily comprised of debt, while MGM Resorts stands at $17.41 billion, also burdened by significant debt of $4.42 billion. Analysts are curious about what potential buyers see that the market seems to overlook.
Market participants appear to be struggling to see beyond the debt affecting these companies. Caesars, in particular, has suffered after a tumultuous period under private equity ownership, which resulted in separating its real estate from its core operations.
According to Jordan Bender, an equity research analyst at Citizens, the issue lies in the undervaluation of gaming companies. He notes, “For years, gaming companies have traded at low valuations, leading to a significant gap between public and private market values.”
Bender suggests that recent take-private transactions are largely motivated by the chance to exploit this valuation disparity, a trend that may continue in the gaming sector in the medium term as strategic buyers take advantage of the differences in pricing.
The billionaire Fertitta's interest in Caesars became public in February, but the all-cash deal was only finalized on May 28, valuing the company at $17.6 billion at $31 per share. The Carano family, which took control of Caesars in 2020, will see the debt arrangements remain intact as part of this deal, potentially lowering interest payments.
Bender anticipates that while there may be opportunities to enhance customer experiences through synergies, such as utilizing Landry’s customer database, there will not be significant changes in the day-to-day management of these companies due to the existing management's strong performance.
As for the financials of MGM Resorts, the question remains whether this flurry of activity will spark further interest in gaming stocks. Bender believes that these transactions are unlikely to attract a wave of new strategic buyers or activist investors in the near term. Instead, they set a valuation benchmark established by sophisticated capital, providing a clearer reference point for evaluating the intrinsic value of gaming assets.