Scientific Games Will Retain Minority Stake in SG Lottery IPO

Posted on: September 24, 2021, 10:40h. 

Last updated on: September 24, 2021, 05:13h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Scientific Games (NASDAQ:SGMS) said that if an initial public offering (IPO) for its SG Lottery unit materializes, it will sell the majority of that equity to outside investors.

SG Lottery
Scientific Games will retain only a minority stake in an SG Lottery IPO. Proceeds will be used to reduce debt. (Image: Georgia Manufacturing Alliance)

In late June, the gaming equipment maker said it will divest its lottery management and sports wagering units as part of an ongoing effort to reduce debt and firm its balance sheet. Those transactions could come in the form of an initial public offering (IPO), a merger with a special purpose acquisition company (SPAC), or an outright sale or a combination with another entity.

If an initial public offering of SG Lottery is consummated, we expect to hold no more than a minority equity interest in the entity that owns SG Lottery. But the amount of such minority equity interest is uncertain at this time,” according to a statement issued by the Las Vegas-based company.

Scientific Games confirms that it will “use a substantial majority of the net proceeds from an SG Lottery transaction” to pay down debt. It added that it will not use capital from that sale or IPO to pay dividends or buy back stock.

As of June 30, Scientific Games has $9.43 billion in debt.

Plenty of SG Lottery Chatter

There’s plenty of speculation regarding what will come of the SG Lottery business.

Momentum is reportedly building for Scientific Games to potentially list the enterprise in Australia in an IPO that could be worth as much as $5 billion and would be that country’s largest IPO in seven years. Some market observers believe SG Lottery can fetch a higher valuation in Sydney because local investors are already highly familiar with a business-like SG Lottery. That’s owing to Aristocrat Leisure and Tabcorp trading in Australia.

Still, Scientific Games has options, and those include a possible sale of SG Lottery to another company. For example, private equity firms Apollo Global Management (NYSE:APO), Carlyle Group, and TPG Capital are said to be considering bids for the lotto business.

“We cannot assure you we will ultimately consummate an initial public offering of SG Lottery, or that, if we do so, we will do so prior to June 30, 2022,” said Scientific Games.

SG Lottery Desirable Asset

While it’s not clear whether an IPO or sale is in SG Lottery’s future, it is clear that the business is likely attractive to both suitors and public investors.

The provider of the systems used to generate Mega Millions and Powerball tickets, SG Lottery is profitable, having generated $430 million in earnings before interest, taxes, depreciation and amortization (EBITDA) for the 12 months ending June 30.

Additionally, it holds the dominant share in the instant games segment — nearly 70 percent — and a 13 percent share in the rising iLottery niche.

SG Lottery revenue is poised to deliver a compound annual growth rate (CAGR) of 13.6 percent through 2022.