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Consolidation: Not Just for the Big Guys Anymore

In the model set by Boyd Gaming and Penn National, small operators are becoming major players through smart acquisitions

Consolidation: Not Just for the Big Guys Anymore

Consolidation has become a theme in the casino industry.

In a mature industry, the avenue to growth is for companies to buy other companies, stripping out redundant costs. We’ve certainly seen our share of consolidation from the likes of Penn National, Boyd Gaming and Eldorado Resorts among casino operators, and among suppliers before that.

Activist investors like Carl Icahn (Caesars) and Starboard (MGM Resorts) assure that consolidations and restructurings will continue.

But, while the big companies make the headlines, there are also companies bubbling up from the bottom.

We’ve seen smaller companies participate, most notably Churchill Downs and Eldorado as they’ve grown into enterprises nearing $4 billion in market value through acquisitions. Golden Entertainment has been actively growing from a slot route/tavern operator into a casino operator.

Other emerging companies are Twin River and Maverick Gaming.

Not long ago, Twin River was the privately held owner of a slot casino in Rhode Island and a racetrack in suburban Denver.

Then, the little company bought Hard Rock Biloxi for $250 million. It acquired Rhode lsland’s second casino license and built a new Twin River on the Massachusetts border in Tiverton. Then, in a case of if you can’t beat ’em, join ’em, Twin River agreed to buy three small casinos in Black Hawk, Colorado, so it can take advantage of the Denver area’s growing gaming industry as a fellow casino operator rather than being the outside racetrack owner blocked out by the casino lobby. That purchase is expected to close early next year.

Twin River’s most recent acquisition was Dover Downs casino in Delaware, a merger through which the company went public. Twin River now trades on the New York Stock Exchange under the symbol TRWH and has more than $600 million in revenues. It’s not so little anymore.

Yet another small company participating in the consolidation is Maverick Gaming, which was formed just a year ago.

The company headed by industry veterans Eric Persson and Justin Beltram is buying Red Lion Casino, Gold Country Casino and High Desert Inn in Elko, Nevada.

The purchase follows Maverick’s initial acquisitions of the Wendover Nugget and Red Garter Hotels in Elko last year and the announcement in September that it will buy Nevada Gold & Casinos, which operates nine mini-casinos in Washington state.

Red Lion, Gold Country and High Desert will add 435 slot machines, 11 table games and 544 hotel rooms to Maverick, whose other Elko properties have more than 600 hotel rooms and 1,200 slot machines.

The latest acquisitions are expected to close in May, and will be funded by cash on hand and financing from HG Vora Capital Management. Washington regulators are expected to act on the Nevada Gold purchase in the first half of the year.

Maverick intends to be “a best-in-class regional owner and operator” in North America, CEO and majority shareholder Persson says.

Maverick will be announcing more strategic acquisitions over the next three months that will transform the company “into a true regional operator,” Persson says.

In other words, Maverick has the motivation and resources to grow through acquisition beyond what already will be a $100 million EBITDA enterprise.

So, it isn’t just big guys like Caesars, MGM, Icahn and Starboard playing the consolidation game.

And with so many small casinos in the U.S., their roll-up by bigger companies will be worth watching, and perhaps participating in.


Japan: Land of the Not-So-Rising Sun?

We have long been less enthralled with the prospects for casino resorts in Japan than many others.

Japanese ambivalence about gaming, the likely insistence of Japanese ownership, or at least partial ownership, and the country’s internal political divisions have all made adoption of the so-called Singapore model seem unlikely.

Now, it appears others are starting to share some of the doubts.

Japan’s casino revenue may fall short of expectations due to government restrictions on the industry, high operating costs and high initial investments, said analyst Praveen Choudhary of Morgan Stanley as quoted by Inside Asian Gaming.

Choudhary expects Japanese gambling revenue of $9 billion annually based on casinos in two large cities and one regional casino. However, that may be optimistic, he added.

If Japan goes for smaller cities to host casinos, results could underwhelm, with $4 billion in revenue and $1.4 billion in EBITDA annually, Anil Daswani of Citigroup said.

The returns would be nowhere near as attractive as those in Macau, he added.

Casinos are unlikely to work with junkets to bring in VIP gaming rooms and customers due to high construction and operating costs, Choudhary added.

He also pointed to requirements that casino space be limited to 3% of total floor space and that locals be charged US$50 to enter, and also have restrictions on the number of times they visit casinos.

Japan will be a very worthwhile prize to the winners, but maybe not quite a Singapore-like grand slam.

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