Aristocrat Leisure (ALL) is set to massively expand its operations in the US, more than tripling the amount of gaming machines it operates by taking over the largest provider of leased gaming machines to tribal casinos for around $US1.283 billion ($1.369bn).
The purchase of Tenessee-based Video Gaming Technologies will see Aristocrat increase its footprint from 8,200 machines to 28,400 and gives the company a wide footprint across the US Midwest and south, where the majority of the units are controlled by tribal casino operators in the region. The deal will also see Aristocrat grow its operation in Washington State and California.
Aristocrat, which already derives the majority of its revenue from the US, with 46 per cent of sales in the half year to 2014, grew its installed base of gaming machines by almost 20 per cent last year. This deal will be transformative in scale for the company with the addition of 20,200 machines and 610 staff, and based on 2013 financial results, should see Aristocrat nearly double its earnings before interest, tax, depreciation and amortisation (EDITA).
"VGT provides a unique opportunity to accelerate our growth in the US recurring revenue segment, which has for some time been an important strategic objective of Aristocrat," Aristocrat chief executive Jamie Odell said.
"The strong accretion and free cash flows expected from this transaction will not only transform the scale of our gaming operations business today, but will also preserve Aristocrat’s options to pursue acquisitions in the future in key growth segments – including digital."
Aristocrat shares were placed in a trading halt ahead of the announcement, after closing last week at $5.39.
The Australian gaming machine manufacturer will fund the acquisition and refinance its existing debt facilities through new debt facilities and an underwritten, institutional placement of $A375 million.
The group said the new debt facilities will comprise a $US1.3bn seven-year term loan and a $A100m five-year revolving facility.
The deal is subject to required regulatory and other approvals and customary closing conditions, with expected completion being eyed for the first half of fiscal 2015.
Aristocrat expects it will deliver earnings per share (EPS) accretion (pre-amortisation of acquired intangibles, synergies and transaction costs) of low- to mid-teens on a pro forma basis.
UBS is acting as the sole financial adviser to Aristocrat, and Allens and Covington & Burling LLP are its legal advisor.