According to a Tuesday (18 February) press release, L&W will pay $850 million (£675.5 million/£815.4 million) in cash up front, along with a four-year earn-out structure worth up to $200 million. The deal is expected to close in the second quarter of this year.
Analysts reacted favourably to the announcement and one suggested that L&W would be at the leading edge of a new wave of acquisitions.
Frank Fantini, longtime gaming analyst and founder of Fantini Research, has followed L&W throughout its history. He surmised that the advancement of various adjacent sectors such as charitable gaming presents new opportunities for the big players to get into a market early by snapping up established brands.
Fantini told iGB that it’s possible more “traditional, conventional game companies are going to start acquiring” other regional companies like Grover. “I think this could be the first of what may end up being numerous acquisitions in that industry,” he said.
Analysts positive in terms of value
On the topic of valuation, Fantini said the 7.7x AEBITDA multiple was favourable, especially with cost reductions and growth opportunities still ahead.
“When you consider that gaming tech companies probably sell at 10x EBITDA, it’s actually immediately accretive to their earnings,” he said. “It’s a lower valuation than their own stock is selling. So in that case it’s a slam dunk for them in that regard.”
Reactions elsewhere were similarly positive. The team at Macquarie gave an “outperform” rating on the stock and titled their note “Finding their four leaf Grover”.
“LNW’s acquisition of Grover Gaming’s Charitable Gaming Assets adds a long-term growth driver through expansion into a new adjacency,” analysts said. “In the near-term, we remain confident that the $1.4bn 2025 EBITDA target remains achievable without contribution from this acquisition, driven by gaming momentum, double-digit igaming growth and steady SciPlay profitability. We forecast a 13% three year EBITDA CAGR (ex stock comp) to CY27 with earnings growth across all three verticals.”
“Move over Big Bird”
Barry Jonas of Truist Securities was also on trend, entitling his note “Move over Big Bird”. Similar to Fantini, Jonas called the valuation “attractive” and noted the growth opportunities this will create.
“The acquisition of Grover Gaming’s assets enables LNW to leverage its content to new customers in the charitable gaming space which has high barriers to entry,” Jonas wrote.
L&W said the acquisition was funded with cash on hand and incremental debt financing, but it expects its net debt leverage ratio to stay within the target range of 2.5x-3.5x. The company also is reaffirming its 2025 consolidated AEBITDA target of $1.4 billion.
With regard to Grover, founder Garrett Blackwelder will stay on in an advisory role “to help drive the continued success of the business over the next three years” per the release. Its 2024 revenue and AEBITDA were $135 million and $111 million, respectively, L&W said.
L&W will now take over Grover’s install base of 10,000-plus leased electronic pull-tab machines. The company is based in North Carolina and operates in five states: North Dakota, Ohio, Virginia, Kentucky and New Hampshire.
Wilson: Deal is a big investment in charitable gaming
On an investor call late Tuesday, L&W CEO Matt Wilson was clear in explaining that his company is bullish on the charitable gaming market. As legislative progress continues to stall out again this year, particularly for igaming, these established adjacencies have become increasingly lucrative and attractive.
“I think the most obvious way for us to drive the top-line growth of the Grover assets under our ownership is to deploy our RND arsenal on the charitable gaming sector,” Wilson told investors. “If you think about L&W over the last few decades, we’ve spent literally billions of dollars on RND. Building great franchises, game math, art innovations, all of these things across many different studios. Our intention is to turn that cannon directly on the charitable market.”
With regard to expansion, Wilson said Minnesota and Maryland are the next biggest priorities. He explained that L&W had explored entering the charitable market organically, but the fragmented customer base makes it difficult. Grover has 1,500 customers across five states versus L&W’s 700 customers across all of North America.
“We could’ve built it organically, but it could’ve taken us five, six, seven years to get to this level of scale,” Wilson said. “We get to buy 10,000 units immediately and then layer in our content.”
Charitable gaming and e-pull tabs
Charitable gaming, as the name suggests, is a framework through which the bulk of revenue is funnelled to local organisations. It is generally seen as a more palatable form of expansion in states that are traditionally opposed to gaming. The laws governing the sector vary greatly by state, as do the types of gaming made available. There are restrictions as to which organisations can operate the games, but the sector has quietly grown into a substantial business opportunity.
According to Harbor Compliance, charitable gaming is legal in some form in all but two states, Hawaii and Utah. Several other jurisdictions – Alabama, Maryland, Pennsylvania, South Dakota, Vermont and Wyoming – operate on a county level and don’t have state frameworks.
Pull tabs are simple, lottery-like game cards on which players pull open perforated tabs in hopes of winning small jackpots. They come in both paper and electronic versions, known as e-pull tabs. The electronic versions take the games and port them into a slot machine-style cabinet to make it feel more like traditional casino gaming. Thus, they are similar but not identical to other verticals like Class II machines, video lottery terminals (VLTs) and historical horse racing (HHR) machines.
E-pull tabs are currently legal in 11 states and paper products are legal in about 40. Both versions are popular among veterans and charitable groups such as the Veterans of Foreign Wars (VFW), American Legion and others.
For L&W, the idea is to move their established game titles into Grover’s e-pull tab machine base. On the investor call, Wilson said his company has loads of experience porting over games to other verticals like those mentioned above.
“It’s not exactly the same, but we know how to do it – we’ve proven this out in many adjacencies,” he asserted.
Latest shift in direction for L&W
The acquisition marks the latest chapter for a company that has transformed entirely over the last decade. In the 2010s, L&W – then known as Scientific Games – was an extremely diversified and leveraged company. It had expanded to basically all forms of gaming and had overextended itself in the process.
Then in June 2021, the company announced a radical shakeup. It divested its sports betting and lottery divisions to refocus entirely on games, its core business. The lottery business was sold to Brookfield Business Partners in April 2022 for $5.8 billion and the sports betting division was acquired by Endeavor for $800 million in September that year. The company also completed substantial debt refinancing around the same time.
In the years since, L&W has had a very successful run. Its stock price has risen from the mid-$70s at the time of divestiture to $106 at the time of writing. By all accounts, it has solidified itself as a top-three supplier alongside Aristocrat and IGT. The Grover deal is now the biggest investment the company has made in its new streamlined form.
Original article: https://igamingbusiness.com/finance/lw-charitable-gaming-grover-acquisition/
