Deal is latest instance of slot-sector consolidation
Canada’s Amaya Inc. announced that it will sell its Georgia-based slot manufacturing subsidiary Cadillac Jack to Las Vegas-based AGS LLC, an affiliate of Apollo Global Management, for $379 million (C$476 million).
The deal represents the combination of two traditionally strong Class II slot suppliers, each of which had made substantial inroads in traditional Class III gaming markets. It also marks yet another step in the overall consolidation of the slot supply sector, which has seen more major slot-manufacturing merger deals in the past two years than in the history of the industry, led by mega-deals in which Bally Technologies, WMS and SHFL entertainment were swallowed by lottery giant Scientific Games and its lottery competitor GTECH agreeing to acquire leading slot-maker IGT.
For AGS, formerly known as American Gaming Systems, it marks the second major acquisition in as many years, as the company seeks to carve a larger share of the U.S. slot market.
Since the acquisition of AGS by Apollo at the end of 2013 and the installment a few months later of David Lopez as CEO, AGS has taken an aggressive growth stance. Last year, the company acquired Colossal Gaming, the company founded by gaming legend Steve Weiss. The company is still combining the Colossal slot platform with the Roadrunner platform the company developed under former CEO Bob Miodunski, the former Bally CEO who was hired in 2010.
The purchase of Cadillac Jack—which currently has more than 13,000 games installed in casinos and a library of 165 game titles—adds another layer of technology to AGS, and another slot line that has performed consistently well in Class II markets including Oklahoma and Mexico.
“After what can only be categorized as an incredibly transformational year for AGS, the acquisition of Cadillac Jack further demonstrates that we are positioned to take the next step in establishing ourselves as a major player in the gaming industry,” said Lopez. “In addition to elevating our leadership position in the Class II space, Cadillac Jack accelerates our Class III growth strategy by complementing our product suite and broadening our content library.”
Pursuant to the acquisition agreement, AGS will purchase all of the shares of Amaya Americas for an aggregate purchase price of approximately $476 million, comprising cash consideration of $461 million, subject to adjustment, and a $15 million payment-in-kind note, bearing interest at 5 percent per annum and due on the eighth anniversary of the closing date.
“Cadillac Jack has grown its business significantly in new geographies and new markets under Amaya, and we are very proud of the efforts of its management and its employees,” said Amaya CEO David Baazov. “We are confident that combining Cadillac Jack with AGS presents a strong opportunity to expedite the company’s growth strategy, while at the same time crystalizing on the strong value created in the business to benefit Amaya’s shareholders.”
The transaction is anticipated to close before the end of 2015, subject to receipt of gaming regulatory and antitrust approvals and other customary closing conditions. Net proceeds from the transaction will be used primarily for deleveraging, including the repayment of Cadillac Jack’s existing senior secured term loan and mezzanine debt.
Macquarie Capital and Deutsche Bank Securities Inc. are acting as Amaya’s co-financial advisors in connection with the Transaction, and Greenberg Traurig, P.A. is serving as legal advisor to Amaya in connection with the Transaction.
The transaction is “a result of Amaya’s previously announced strategic review to explore alternatives for Cadillac Jack with the fundamental objective of expediting Cadillac Jack’s growth strategy and maximizing value for Amaya’s shareholders,” according to a statement from Amaya.
The deal also represents Amaya’s ongoing effort to clear the decks of its land-based slot businesses to focus on the growth of PokerStars, the leading online gaming operator the company acquired last year, and which has caused a nearly eight-fold increase in adjusted earnings. Only two weeks ago, the company announced it is spinning off its Diamond Game Enterprises video lottery subsidiary through an initial public offering of the newly formed Innova Gaming Group.
Commenting to the TotallyGaming.com website, Baazov predicted that Amaya is not done reinventing itself, and that he anticipates further strategic acquisitions in the coming months.
“Going forward, Amaya intends to acquire new customers and gain online gaming market share through the continued expansion of the B2C business in other verticals, including sports betting, casino, social gaming and daily fantasy sports, which we expect will supplement our current growth plans for our core poker business,” Baazov said.
“Amaya currently anticipates executing on this strategic direction through both organic development and strategic mergers and acquisitions. As our B2C business is Amaya’s core growth platform, we have initiated a process to identify opportunities to divest our B2B assets, with the aim of facilitating their future growth and maximizing value for Amaya shareholders.”
