In a surprising development, International Game Technology (IGT), one of the world’s largest machine makers of slots, has hired Morgan Stanley to look out for takers to buy down the company. This Las Vegas based company is finding it tough to survive owing to its high operating cost. As the slot machine making industry consolidates, not only IGT, but a lot of old players are also finding it extremely difficult to survive due to cut-throat competition and slow growth.
IGT is an iconic brand, which has created slot machines such as Wheels of Fortune and Avatar. With a strong base in the slot making industry, the company bought Double Down Interactive LLC in the year 2012. The latter is the maker of DoubleDown Casino, which became extremely popular on Facebook. The acquisition helped the company explore the social gaming space.
IGT has been exploring options for more than two months and has become a matter of interest for many prospective buyers in the industry. A lot of established players in the market are taking a keen interest in the initial negotiation. People familiar with the development stated that strong interest has been generated from well-known companies in this space regarding the deal. IGT has already held discussion with a couple of them.
The news has had a very positive impact on the share market price of the company. After the announcement of the recent development, the stock of the group soared in the market. The price went up by more than 14% to take it to the price of $14.31. The present market valuation of IGT after the recent announcement stands at a staggering $3.5 billion. Financial analysts believe that another round of stock shooting is likely after the final buyer is revealed. Speculation however, will do little good to the company’s fortune in the long term.
The website of IGT says that MGM Resorts and Bellagio Resort among a dozen other reputed companies in the casino space are their customers. The company has been successful in retaining customers for a long time. This relationship can prove to be an important factor on the negotiation tables.
IGT is hosting presentations at the management level for prospective buyers. The inside news has not been revealed because of the sensitivity of the matter. Both Morgan Stanley and IGT’s top management declined to comment owing to the premature stage of the development.
IGT made this drastic move for its repetitive under performance over the previous quarters. The company has lost more than 31% of its stock value in the last few years. This could prove to be one of the factors that may disturb the management in the final rounds of negotiation.
Another likely problem that could hurt the ongoing sale is the regulatory pressure and red tape issues. Gaming mergers typically take a time span of a year for all formalities. International approvals take months to arrive. This fact will certainly be at the back of any buyer’s mind. The declining value, along with regulatory hassle will surely be a test for IGT and its management.
Some companies who are actively perusing the IGT deal might end up facing antitrust hurdles. This is because of the consolidation that has happened in the past. Some of the companies who are likely to come under the purview of this challenge are Bally Technologies, Sega Sammy Holdings, Aristocrat Leisure limited. All the companies mentioned above have a strong presence in their respective countries.
PE companies may have a tough time if they wish to enter this buying extravaganza-the reason being the regulatory pressure. Banks too would be under pressure to hold a fund for such a long time while performing the process of leveraged buyout. The complexity will be largely due to the vastness of the operations of IGT. The official website of the company says that IGT has over 60 offices span across countries such as Argentina, China, New Zealand and South Africa. An operation, which is spread across all the continents will be a challenging task to manage for any company.
That being said, the market will soon get to see some interested players who are ready to explore the option of a merger. Whoever buys this, it is going to be one humongous challenge for them to maintain the cash flow of a company, which is losing its value thick and fast in the market.