Casino M&A Interest Still Vibrant Despite Rising Rates

Ten-year Treasury yields recently hit 24-year highs and with the Federal Reserve likely to raise interest rates once more before the end of this year, elevated borrowing costs could be headwinds to casino industry consolidation. Or not.

In a new report to clients, Stifel analyst Jeffrey Stantial notes that the sentiment at the Global Gaming Expo (G2E) in Las Vegas last week was that the volatile bond market could be a hurdle to additional casino mergers and acquisitions, but there’s still ample interest in regional gaming assets.

One encouraging sign on the casino takeover front is that Fertitta Entertainment Inc. (FEI) is on pace to close its $17.6 billion acquisition of Caesars Entertainment (NASDAQ: CZR) next year. That deal includes a significant amount of debt financing.

Regional Casino M&A Could Benefit These Operators

In his report, Bender highlights Century Casinos (NASDAQ: CNTY) and Churchill Downs (NASDAQ: CHDN) as potential beneficiaries of suitors continuing to peruse regional gaming assets despite elevated borrowing costs.

There’s something to that thesis. Last week, Century announced it’s selling two gaming venues in Alberta, Canada for $16.4 million, potentially signaling that the operator may be able to unload other assets in a bid to pay down debt.

Churchill Downs has nine regional casinos on the market and it’s expected the operator will sell those venues individually or in small groups — a strategy that could be rewarded against the backdrop of high interest rates.

Though not mentioned by Stantial, the combined Caesars/Golden Nugget could also benefit from ongoing interest in regional casinos because it’s widely believed that company will, either voluntarily or at the behest of regulators, unload some gaming venues.

Don’t Expect Big Online Deals

The iGaming and online sports betting segments have long been homes to rampant mergers and acquisitions and rumors and while some operators in those spaces have minimal debt, it’s unlikely the those industries will be fertile territories for consolidation over the near term.

Slumping share prices make it difficult to use stock as currency and, as Stantial points out, there’s limited appetite for large-scale transactions at the moment.

“On the online front, most operators indicated little interest in larger transactions, though we heard potential for product tuck-ins that either 1) improve odds/pricing, or 2) add additional user acquisition and cross-sell channels,” concludes the analyst. “While the predictions landscape is evolving rapidly, we think that legal uncertainty may curtail pace of consolidation for now.”