Aristocrat Leisure Ltd. (ALL) agreed to buy Video Gaming Technologies Inc. for about $1.3 billion to triple its North American business amid falling profit in Australia.
The purchase of closely-held Franklin, Tennessee-based Video Gaming Technologies by the Sydney-based gambling machine supplier will be partly funded by an underwritten institutional placement of A$375 million ($351 million), Aristocrat said in a regulatory filing. The company will also arrange new debt facilities totaling almost $1.4 billion to finance the takeover and to repay existing borrowings, it said.
The acquisition would boost Aristocrat’s exposure to 28,400 machines from 8,200 in North America, where it’s reaping bigger rewards than at home. Profit in North America rose 4.6 percent in the six months to March 31 from a year earlier, compared with a 19 percent drop in Australian earnings, the company said May 28.
“It’s a market on its way up and they are paying an astronomical premium,” said Evan Lucas, a market strategist at IG Ltd in Melbourne. “It’s whether or not that actually comes out and returns for them, not just over the next year, but over the next three.”
The $1.3 billion purchase price is equivalent to about 8.3 times its $157 million in earnings before interest, taxes, depreciation and amortization recorded in 2013.
The takeover is subject to regulatory and other approvals and is expected to complete by the first half of fiscal year 2015, the company said. The acquisition is the company’s second in five years. Its only other purchase during the period is Paltronics Inc., a computer equipment firm for gambling machines, which it bought for an undisclosed sum earlier this month, according to data compiled by Bloomberg.
Aristocrat’s new debt facilities will include a $1.3 billion seven-year loan and a A$100 million five-year revolving facility, it said today. The company said June 25 that it was in advanced discussions with VGT on a possible transaction.
“VGT has a complementary product offering,” Jamie Odell, chief executive officer of Aristocrat, said in the statement. It “provides a unique opportunity to accelerate our growth in the U.S. recurring revenue segment, which has for some time been an important strategic objective of Aristocrat.”
Top Gambling Market
The U.S. is the world’s largest casino gambling market with the most revenue coming from the Las Vegas Strip, followed by Atlantic City in New Jersey. The top two markets generated more than $9 billion in casino revenue last year, according to data compiled by Bloomberg Industries.
The Chinese city of Macau is the world’s largest gambling hub with casino revenue of about $45 billion last year that’s seven times as much as the Las Vegas Strip.
Aristocrat shares are halted for the capital raising today. They’ve risen 15 percent this year, compared with a 3 percent gain in the benchmark S&P/ASX 200 index.
“Aristocrat’s installed base has been steady over the years, indicating growth has been hard to come by,” said Ben Le Brun, Sydney-based market analyst at OptionsXpress, a unit of San Francisco-based financial services firm Charles Schwab Corp.
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