IGT’s Global Gaming Division May Sell to Apollo Global Management

International Game Technology (IGT), the multibillion international slots and lottery provider, is reportedly looking at selling its global gaming slots division to Apollo Global Management.

The New York-based investment firm is keen on the potentially $4 billion to $5 billion purchase, according to insiders in a recent report by Bloomberg. The news sent IGT stocks surging on Thursday, and they were still trading up 10.45% as of Friday morning.

IGT’s global gaming division grew 34% in Q2 2023, according to the operator’s last quarterly report.  In the same period, the company posted $1.06 billion in revenues and signed a renewed brand deal for its licensed Wheel of Fortune slots with Sony Pictures.

However, IGT’s lottery division remained the bigger part of the business. Earlier this year, the operator also paid out $269 million of a $419 million joint settlement in Washington State to end a lawsuit over its involvement in “social casino” operation DoubleDown.

Apollo Global Management is no stranger to gambling acquisitions. It currently operates the Venetian and Palazzo casino resorts on the Las Vegas Strip. It also put down $1.15 billion to buy up IGT’s Italian gambling arm Lottomatica in 2020, via its investment subsidiary Gamenet Group.

A Potential Multi-Billion-Dollar Deal

The $4 billion-$5 billion valuation apparently includes the assumption of debt.

The company is profitable in all its business segments, which collectively reported an impressive operating margin of 24% in the first half of 2023.

The company’s belief in the undervaluation of its business units by the market is further supported by its stock trading metrics. IGT’s stock trades at a forward price-to-earnings ratio of 16.5, according to investment analysts at the Motley Fool.

Although all segments of the business are profitable, IGT’s strategy, as outlined in its last report, seems to be cutting costs and debt while delivering more value to shareholders.

Selling off some of the less profitable parts of the business, while it has strong momentum and growth, would be an ideal way to do that.  

“We are still in the process of exploring strategic alternatives for our Global Gaming and PlayDigital segments and can’t comment on rumors or speculation,” IGT said in a statement to Reuters.

Strategic Alternatives

Earlier in 2023, IGT said basically the same thing – it is looking at “strategic alternatives,” but was unwilling to name any potential buyers.

These units have shown promising growth, with the global gaming revenue witnessing a 15% increase, and PlayDigital experiencing a 27% surge in the second quarter.

The company’s management also said in its Q2 earnings call that IGT was on track to achieve its midterm 2025 financial targets across its lottery, gaming, and PlayDigital segments. The self-imposed targets include annualized adjusted revenue growth in the middle single digits, and midteens growth in operating profit.

Those kind of figures, especially when market analysis suggest it is also undervalued, should make the business an attractive proposition to firms like Apollo who are able to take multibillion risks.

Main rival global slot provider Aristocrat trades at around 15 times yearly earnings, whereas a $5 billion price tag for IGT would be 13 times its yearly income.

However, the news of a potential deal did bump IGT’s stocks up some 10% this week – so there is surely still some room to maneuver on the quoted price before any potential deal is made.