Casino M&A Interest Remains Vibrant Despite High Borrowing Costs

Even with elevated borrowing costs and tight credit conditions threatening to stall corporate dealmaking, casino industry consolidation isn’t slowing down. In fact, M&A appetite across the gaming sector remains surprisingly vibrant.

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 gaming M&A front is that Fertitta Entertainment Inc. (FEI) continues to navigate financing for its proposed acquisition of Caesars Entertainment (NASDAQ: CZR), a transaction that relies on a significant debt structure to close.

Regional Casino M&A Could Benefit These Operators

In his report, Stantial highlights Century Casinos (NASDAQ: CNTY) and Churchill Downs (NASDAQ: CHDN) as potential beneficiaries if suitors continue to target regional gaming properties 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 specifically highlighted by Stantial, a combined Fertitta and Caesars footprint could also spur secondary asset sales. Industry observers widely believe the operator may voluntarily—or at the direction of antitrust regulators—divest select regional properties to streamline its balance sheet.

Limited Appetite for Big Online Deals

The iGaming and online sports betting sectors have historically been hotbeds for M&A activity and speculative rumors. But while several digital operators carry minimal debt, the sector is unlikely to see large-scale consolidation in the near term.

Depressed share prices make using stock as acquisition currency difficult, and as Stantial points out, institutional appetite for mega-deals remains muted.

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