Merger Activities to Return to Gaming | IXGAMES

A few years ago, the gaming industry saw an unrestrained pattern of merger and acquisition activities. This trend could very well make its comeback to the gaming industry.  There are predictions made on bankruptcy deals, as well as reports from potential buyers of casinos. Bankruptcy deals Even though merger and acquisition activities are expected to return, high purchase figures are predicted to take a backseat. Andrew Zarnett, gaming analyst for Deutsche Bank, has reported to investors how bankruptcy sales will inundate the market within the next couple of years. This will include companies suffering from lack of liquidity, and will most likely offer gaming assets at dirt cheap rates. In fact, Carl Icahn, known to be a corporate raider, has already acted on this newly resurrected trend, taking advantage of bankruptcy deals and purchasing the Tropicana Atlantic City for 200 million dollars. He has also bought the Fontainebleau for 150 million dollars, although it had once been priced at about 3 billion dollars. Zarnett has been keenly observing the goings-on in the casino business for more than 14 years already. According to his observations, the reason behind the high amounts of debts incurred by gaming companies is private equity buyouts. Although these gaming companies started out with a clear map for success, their investment strategies ended up backfiring on them. Cheaper deals, better cash flows A classic example would be Harrah’s Entertainment, which sold for $17.1 billion, or roughly 10.7 times the cash flow. At 16.5 times the cash flow, Station Casinos was sold privately for $5.5 billion. Zarnett believes the sizeable cash flow generated by gaming operators during the period before recession kicked in served as a huge motivation for the private equity firms. Also, the supposed undervalued real estate holdings had served as another motivating factor. Averting bankruptcy By way of carrying out multiple debt exchanges, Harrah’s was able to keep itself from going completely bankrupt. During the short-term, the strategy was able to eliminate near-term debt maturities. As for Station Casinos, a Chapter 11 bankruptcy restructuring plan is in the works. A plan is currently being proposed, one that will divide key assets into another holding company while, at the same time, placing the company on auction. The Fertitta brothers, meanwhile, are hoping that they will be able to retain their casinos, through their Fertitta gaming venture, at a bid of 772 million dollars. Still, Zarnett maintains that retaining such assets will be very difficult for the Fertitta siblings. Zarnett has also made the prediction that along with Station Casinos, even Harrah’s and MGM Mirage are set to unburden themselves with some assets. Potential buyers There are potential buyers setting their sights on casinos. One of them is Boyd Gaming Corp, which has already made two different proposals in order to acquire Station Casinos or at least a part of it.  Other casino operators are interested as well. Other offers involve a Baltimore-based Cornish Group and Dennis Gomes partnership, as well as an offer from Gentling, a casino operator based in Malaysia, and finally Phil Ruffin who owns Treasure Island.