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Scientific Games Corp (SGMS), WMS Industries Inc. (WMS), International Game Technology (IGT): The Real Casino Action Is With the Game Makers

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Scientific Games CorpWith all the action going on in the casino industry, I decided to take a look at the companies that make the games that go on the casino floors.

What got me curious about the sector is the recent buyout activity going on. First, Scientific Games Corp (NASDAQ:SGMS) agreed to buy WMS Industries Inc. (NYSE:WMS) for $1.5 billion. Then this month Bally Technologies Inc. (NYSE:BYI) agreed to buy SHFL entertainment Inc (NASDAQ:SHFL) for $1.3 billion. These companies have their eye on more than just the casino floor. They’re looking to capitalize with online games as well.

The thinking behind the deals

Consolidation in the gaming sector makes sense for these players. By combining their operations, it not only reduces costs, but gives them a greater footprint to challenge the biggest company in the sector, International Game Technology (NYSE:IGT). The combined companies can now offer nearly all the products required to run a casino.

Scientific Games and WMS

Scientific Games Corp (NASDAQ:SGMS) expects to achieve significant synergies with the WMS Industries Inc. (NYSE:WMS) acquisition. Annual cost savings are expected to be $90 million and cash flow savings could add another $20 million due to lower capital expenditure needs. Without anticipated synergies, the combined companies had revenues last year of approximately $1.6 billion and combined EBITDA of $579 million.

The deal is especially positive for Scientific Games Corp (NASDAQ:SGMS) in that by acquiring WMS Industries Inc. (NYSE:WMS), it will return to profitability. The deal also combines Scientific Games Corp (NASDAQ:SGMS)’s businesses that make instant lottery tickets, lottery and video gaming systems with the businesses of WMS Industries Inc. (NYSE:WMS) that supply gaming machines and interactive gaming content. Scientific Games Corp (NASDAQ:SGMS) CEO A. Lorne Weill said of the transaction:

We expect to combine our game content, technology, operational capabilities and respective geographic footprints to create an enterprise poised to capitalize on significant growth opportunities around the globe.

The combination of these two companies will create a combined iLottery and iGaming platform and content. WMS Industries Inc. (NYSE:WMS) has a well-developed iGaming platform which includes social and mobile gaming. Scientific Games Corp (NASDAQ:SGMS) has an advanced platform for iLottery, sports book and loyalty/rewards. Now the companies can cross-sell these products to their respective customers.

Bally and SHFL

The acquisition of SHFL entertainment Inc (NASDAQ:SHFL), which makes the popular Shuffle Master product that shuffles cards, gives Bally Technologies Inc. (NYSE:BYI) a bigger presence on the casino floors. The acquisition will especially strengthen Bally Technologies Inc. (NYSE:BYI)’s presence in Asia where casino gaming is growing the fastest.

The acquisition will benefit SHFL entertainment Inc (NASDAQ:SHFL) after the company dropped its purchase of online game company Ongame. Prior to being acquired by Bally, SHFL was looking to develop its own platform. Now it can direct its resources to working with Bally on its iGaming platform.

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