Fitch: US Gaming Suppliers ‘Still Nursing M&A Hangover’

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According to a new report from Fitch Ratings, the historically low leveraged US gaming supplier sector will need more time to recover following the debt-funded consolidation spree over the past two to three years.

That announcement came from Fitch this week in a release shared with MGW.

So what’s behind the hangover in question?

Weak industry fundamentals and intensified competition from smaller participants have left a few suppliers with heavy debt burdens, along with thin cash flows intended to pay down debt. While increasing leverage, others partially funded M&A with equity or produce more compelling products and, therefore, are better positioned.

“Fitch believes industry fundamentals will remain weak,” the report summary reads. “Suppliers churn profits by selling slot machines to ever-more thrifty casino operators looking to replace older ones while also selling to new casinos, which are becoming increasingly rare.”

Industry consolidation has come with diversification benefits, which has been fortunate for some suppliers, the Fitch report explains. For example, International Game Technology gained access to the stable lottery systems business and a dominant position in the Italian gaming market. Scientific Games (SGMS) has faster growing instant ticket and table games. Most suppliers have decent exposure to the healthier social casino gaming business, which we believe is cannibalizing land-based gaming.

Want to know more? Additional information is available here.

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