Deal makes GCA “important strategic partner” to casinos
Just when you thought industry consolidation was going to take a breather, yet another M&A announcement heralded even more consolidation on the supply side of the industry. Global Cash Access Holdings, Inc., a leading supplier of ATMs, kiosks and other cash-access solutions to the casino industry, announced that it has agreed to acquire Multimedia Games Holding Company for $1.2 billion in cash.
As supplier consolidation has manifested itself with Scientific Games’ purchase of WMS Gaming, its pending acquisition of Bally Technologies, Bally’s prior acquisition of SHFL entertainment, and GTECH’s pending purchase of IGT, Austin, Texas-based Multimedia Games has frequently been named as a prime acquisition target.
However, those rumors normally centered around the prospect that Multimedia—whose library of games and revenues have both soared as the company has gained licensing across the country—would be acquired by another slot manufacturer.
“While today’s announced acquisition follows in line with the broader industry consolidation theme, we cannot say we viewed Global Cash Access as a natural acquirer of Multimedia Games,” Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said in an interview with the Las Vegas Review-Journal. “Although the two companies serve the same customers, we see limited overlap in the products offered.”
“GCA isn’t a slots company, they’re a processing company,” Robert Shore, an analyst at Union Gaming Group LLC, told Reuters. “They have synergies with slots, but I’m not sure how it’s going to work out. I thought it would be a bigger slots company (that would acquire MGAM).”
“The acquisition of Multimedia Games represents a gaming-relevant transformational opportunity to combine two companies with rich gaming heritages,” said Ram V. Chary, president and chief executive officer of GCA, “and uniquely positions GCA as an important strategic partner to gaming operators by offering them deeper and more integrated solutions across their entire gaming floor. This acquisition further strengthens and broadens GCA’s portfolio of solutions, which has been embraced by our customer base.”
Patrick J. Ramsey, chief executive officer of Multimedia Games, added, “We are excited about the opportunity this combination provides to leverage Multimedia Games’ creative and innovative game development capabilities with GCA’s expansive customer base to provide best-in-class, integrated solutions to the gaming community, and deliver increased value and scale to our respective customers and employees.”
“It’s a space that’s been consolidating, and this is one of the better assets in my view,” Matt Kempler, an analyst at Sidoti & Co. in New York, told Reuters. “You’re going to see bigger scale. Both companies service casino floors, so you’ll have a network of service.”
The transaction values Multimedia at $36.50 a share, a 31 percent premium to its closing price September 5. The deal will be financed with debt and cash on hand, Las Vegas-based GCA said in the statement.
GCA provides casino customers access to cash through ATMs, point-of-sale and debit-card transactions as well and offers slot-machine ticket redemption and jackpot kiosks. The company processes about 90 million transactions annually, dispensing more than $19 billion in cash. MGAM has more than 200 gaming licenses in 29 U.S. states.
The deal is expected to create about $30 million in synergies and to generate about $800 million in revenue based on the 12 months through June 30 and $217 million in adjusted earnings before interest taxes, depreciation and amortization.
The transaction is expected to close in early 2015, pending regulatory approvals. Chary will continue to serve as president and CEO of GCA. The combined company’s headquarters will remain in Las Vegas, and its game development operations will stay in Austin.
Multimedia rose 29 percent to $35.80 at 8:28 a.m. New York time. GCA rose 6.1 percent to $7.98.
Analysts were bullish about the prospects of the merged company. “Following GCA’s announcement it has entered into a merger agreement to acquire Multimedia Games, we affirm our Buy rating and target price,” wrote David Bain of Stern Agee & Leach Inc. “We believe GCA has had Austin-headquartered MGAM on the radar for some time, but it moved opportunistically to acquire it in wake of potentially share disruptive mergers among larger suppliers. There is little product overlap between the two companies. GCA has identified around $30m of cost synergies, including duplicate public company costs and administrative roles, manufacturing consolidation (GCA kiosk manufacturing to MGAM’s scalable Austin facility) and some potentially overlapping management and production roles.”
Todd Eilers, founder of Eilers Research, added that there still could be another buyer for Multimedia Games.
In a report published last week, he noted that the fee to break up the merger is only $11 million through October 8, after which it jumps to $32.5 million.
“We are not surprised to see (Multimedia Games) get acquired as we have been highlighting for quite some time that they were the most attractive target remaining in a consolidating industry,” Eilers wrote. “However, we are surprised that the buyer is GCA, quite frankly.”
