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Deutsche Bank Read-Through on International Game Tech (IGT) (BYI) (SGMS)

July 16, 2014 11:30 AM EDT
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Price: $20.30 -1.17%

Rating Summary:
    13 Buy, 14 Hold, 1 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 20 | Down: 14 | New: 22
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GTECH's deal to acquire International Game Tech (NYSE: IGT) is good for the industry, said Deutsche Bank analyst Carlo Santarelli, but it might not a be good sign regarding potential interest from private equity. Bally Technologies (NYSE: BYI) and Scientific Games (NASDAQ: SGMS) were mentioned in the report.

"In general, we see the on the surface multiples, pre synergies, as a positive for the industry given, on a FCF basis, it implies a value for BYI (Hold; $60.18) of $72 and SGMS (Nasdaq: SGMS) (Sell;$9.93) of $12. On an EBITDA basis, the multiple values BYI at ~$83 and SGMS at $24 on our F15e numbers, respectively. That being said, given the strategic nature of the acquisition and the belief that more than $280 mm in EBITDA synergies exist, the buyer purchase multiple is actually closer to 6.5x forward EBITDA and is in line with our SGMS target multiple, which values the equity at $7, and a discount to the current BYI trading multiple. At a similar multiple, the transaction values BYI at ~$50 per share."

"While we expect the perceived industry consolidation story to be well received and shares of BYI and SGMS to respond favorably to this transaction, we believe it is important to remember a few things: 1) the space has rallied since this transaction was announced, 2) we have yet to see an actual shrinkage of the pure slot equipment competitive landscape (BYI/SHFL, SGMS/WMS, and now GTECH/IGT), and 3) we think this transaction shows just how difficult it is for private equity to get involved in this sector. To expand on the last point, we would note that of the equipment suppliers, IGT, in our view, was the most logical PE takeout candidate given its solid balance sheet, which could easily absorb an incremental 1-2 turns of leverage, its strong free cash flow, its industry leading install base, and its overall scope. With PE, at least for now, not willing to eclipse an offer of $18.25, and the multiples it implies, we find it somewhat difficult for investors to continue to view PE as a potential bidder for assets in this sub sector within gaming," he added.

For an analyst ratings summary and ratings history on International Game Tech click here. For more ratings news on International Game Tech click here.

Shares of International Game Tech closed at $15.50 yesterday.



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