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SciGames and GTECH megamergers could be game changers

11th August 2014 8:58 am GMT
So megamergers are really all the rage. Following Amaya’s jaw dropping $4.9bn acquisition of PokerStars, we have GTECH’s $6.4bn purchase of IGT and Scientific Games’ $5.1bn acquisition of Bally Technologies to consider.That comes to a total of $16.4bn. That is a helluva lot of money. It seems bizarre to be sitting here considering the implications of three megamergers at a time when the company formerly known as the biggest in online gaming has been deserted by all and sundry to such an extent that even its last supporter is pontificating about the value to be gained from breaking up the company. In spite of this, there is little doubt in some people’s minds that these deals are all potential game changers. The received wisdom is that GTECH has not been very good at executing mergers. After Lottomatica acquired GTECH in 2006 it went on an online gaming spending spree throughout 2007 and 2008. After the acquisition of St Minver, Boss Media, Finsoft and Dynamite Idea it seemed to have the full suite of products needed to dominate the online gaming market. However, it pretty much squandered the market-leading positions of Boss Media and St Minver and failed to attract many more customers to Finsoft as OpenBet began to dominate the sports betting market. However, it seems to be learning. Its share price reached a nadir of just over €9 in December 2010. Since then it has been on a steady upwards climb, reaching a peak of nearly €24 in March this year. In September last year we posed the question: can GTECH finally challenge Playtech? The feeling back then was that GTECH had got its own house in order and was ready to compete in the online sector. With the acquisition of IGT it could really go for Playtech with all guns blazing. There is very little overlap in the GTECH and IGT businesses. One is a leader in the land-based casino market, the other is a leader in the land-based lottery market. (The same goes for SciGames and Bally.) Neither has penetrated the online market in anything like the manner they would have wished to despite many (failed) acquisitions.However, since the disastrous acquisition of Entraction, IGT has played a canny hand in focussing on its content and selling it into the market. Cleopatra is one of the world’s most popular slots (online and off) and it has been estimated that IGT slots can account for 70 or 80 per cent of an operator’s revenues. Similarly, SciGames now has a formidable arsenal of games via the combined acquisitions of Bally, WMS, SHFL and BarCrest. The new entities might not have the best platforms in the world (that remains Playtech’s USP) but they might now be able to ramp up prices or even force operators into all-inclusive arrangements for their platforms if they want to continue using their games. “People are underestimating how much power these two entities will have,” says Regulus Partners consultant David Loveday. "All the games people like to play are now owned by two companies." This could create a problem for platform providers such as Playtech or OpenBet. With the current vogue for open platforms this scenario might seem unlikely. But buying all your content from one place could be attractive - think of the time and money saved on everything from negotiating contracts to integrating content. If the majority of popular games come from these two new providers, there is nothing to stop them from sweeping up all the smaller games providers as well as buying a decent platform from a GameAccount Network, for example, for good measure. If all this seems fanciful, just look at the success of the DoubleDown social casino. It seems that you don’t need to have 5,638 slots to run a successful casino. “These three vendors [including Amaya] will have a massive say in the future of this market,” concludes Loveday. GTECH and SciGames will be even more important in the US, where they already have a massive share of the land-based casino and lottery markets. SciGames has already shown how important its contacts can be in securing the deal to provide the Delaware Lottery with its iGaming product. Similarly, IGT now has GTECH’s iGaming systems to sell to its North American casino clients. And GTECH has IGT’s content to sell to its lottery customers. Of course the integration process might well be painful. GTECH is targeting $230m in expense-related synergies in three years. That is a lot of cuts. The smaller, more innovative suppliers can only hope that the behemoths’ attention will be diverted while they make some hay. There is always room for creative minds but the large-scale consolidation that everyone said is overdue has taken hold and is unlikely to stop here. What now for Intralot and Aristocrat, for example? Ah, there you go, there’s the next one.sah@gamingintelligence.com
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