G2E: Finance, gaming execs tout resurgence of industry M&A, investment

Monday’s discussion was moderated by Edward King, former head of gaming investment banking for Morgan Stanley and current co-chief investment officer for Acies Investments. King was joined by three guests:

• Andrew Zarnett, head of gaming investment for Jefferies;
• Shannon Demus, chief financial officer, Americas for Light & Wonder (L&W); and
• Matt Davey, founder and chairman of Tekkorp Capital.

King started the conversation by acknowledging that gaming has become “one of the most active spaces” for private equity. There has been a marked uptick in private equity deals over the last year. Notable examples include Brightstar Capital’s $1.1bn (£840m/ €1bn) acquisition of AGS in May and Apollo’s $6.3bn acquisition of IGT and Everi in July.

Zarnett pointed to the fact that post-Covid revenues have been up nearly across the board. He noted that “the pricing dynamic” has shifted, meaning most of the revenue is coming from the highest-value players.

Davey agreed and lauded “the strength of the American consumer” as a key component of the industry’s success. He noted, though, that the environment is still tough for smaller, asset-light companies. Those companies didn’t have access to capital until recently. The Federal Reserve’s September decision to lower interest rates for the first time in four years was seen as a positive step in the right direction.

On the topic of debt, King highlighted the importance of long-term debt given that legislative risk is still a huge concern for the industry. In the US, no state has legislatively expanded gaming thus far in 2024.

Demus: L&W balance sheet was “appalling”

Demus gave several insights to L&W’s finances and its potential M&A and investment strategies. She noted that when she joined in 2021, the company’s balance sheet was “appalling”.

It was a “confused” company, she said, before the 2022 divestitures of its lottery and sports betting divisions. It has since become “a darling of the industry” she said, notching several consecutive quarters of growth.

Now that L&W is back on track, it “can start making moves” but will be cautious. One acquisition that Demus said has been particularly valuable is social gaming specialists SciPlay, which was completed last October. Conversely, Demus said she was floored about the rumours that rival Aristocrat is mulling a sale of Big Fish Games, given how valuable SciPlay has been to L&W.

A return to halcyon investment days?

Davey was nostalgic for the late 2010s, when the Professional and Amateur Sports Protection Act was repealed and the macroeconomic conditions were more favourable. That time, he said, was ripe for investment and entrepreneurship. The industry is at a much different point now, but Davey posited we could see a similar environment in the near future. This could be anywhere from a year to three-to-five years, he said.

With regard to emerging sectors, some of which may not currently be regulated, Davey said that companies have to decide at what point in the life cycle they want to invest. Getting in early may be cheaper, but it carries higher risk, especially with regulation. And in these cases, public companies can sometimes attract more investment because of the shareholder responsibility.

“The threshold for certainty is much higher in a public situation,” Davey argued.