Worldwide Sport Know-how (IGT) (~$3.5B market cap) is a gaming provider, the results of a 2015 merger of IGT and Gtech that’s at the moment being unwound. The historic IGT enterprise is a video gaming terminal (slot machine) enterprise, it’s being spun in Q3 2025, merged instantly with smaller peer Everi Holdings (EVRI) in a reverse morris belief and the mixed IGT/Everi will then be acquired by Apollo International. The top result’s a $4.05B money fee, earlier than taxes and bills (estimated at $400MM), to RemainCo (the IGT title goes with the slot machine enterprise) which might be a world lottery administration enterprise (itself the creation of a merger between Italian Lottomatica with U.S. primarily based lottery operator Gtech in 2006). The lottery enterprise (assume scratch offs, draw video games, multi-state lotteries) is mostly a very good one, it grows at GDP+, has infrastructure like traits, affordable capex necessities, excessive limitations to entry and secure competitors.
Assuming the cope with Apollo closes, the market is assigning a low valuation to RemainCo:
One purpose spinoffs typically work is that they create pure performs that typically commerce a premium to a conglomerate. Sometimes there are some downsides to breaking an organization up, right here whereas RemainCo ought to commerce at a premium to the slot machine phase, my guess is it is at the moment being discounted due to income focus (along with the Apollo deal obscuring worth) that turns into extra obvious if you break up the enterprise up.
The Italy Lotto makes up almost 40% of RemainCo’s income, in contrast to the U.S. (the place RemainCo could have contracts with 37 of the 48 states/territories which have lotteries), Italy runs its lottery on the federal stage by way of two contracts (roughly equal in measurement). A kind of contracts (Italian Gioco del Lotto sport) is expiring this yr and the bidding course of is aggressive. Lottoitalia (a three way partnership that IGT owns 61.5%) has run the contract because the Nineteen Nineties, good time to say that IGT is managed by an Italian household by way of their De Agostini holding firm (~42% possession, ~60% of the vote) who’re the unique homeowners of Lottomatica and usually appear to be doing proper by shareholders. One potential purpose for elevating a variety of liquidity this yr is the Italian lotto contracts function an upfront fee by the successful bidder, reported to be not less than $1B however probably will find yourself being extra. IGT accounts for the upfront charge as an asset that’s then amortized straight line over the 9 years of the contract (they do take away the upfront amortization of their adjusted EBITDA metric). The request for proposal was issued a pair weeks in the past with a March seventeenth deadline, a reported different bidder is a consortium led by Flutter Leisure (FLUT), which admittedly is a formidable, properly financed competitor (however lottery is at the moment a negligible piece of their enterprise). My guess is IGT/RemainCo will do what it takes to win the contract, even when it means overpaying on the upfront charge.
But when they do not, the inventory nonetheless appears fairly low-cost to me:
By eradicating the $1B upfront charge and ~$250MM in EBITDA (my guess, hoping that is overly conservative), it could solely take EV/EBITDA as much as 5.5x. The inventory would most likely fall a good quantity, however the potential for shareholder returns by way of a buyback would enhance and probably offset a few of that decline. They’ve publicly acknowledged their plan is to paydown $2B in debt, makes use of for the rest of the Apollo funds hinge on the Italian Lotto bid, however they’ve acknowledged some will go to shareholders in type of a buyback or particular dividend.
Incumbents are onerous to beat, particularly ones so deeply entrenched, I feel the Apollo transaction and Italian Lotto RFP fears are obscuring a very good enterprise that ought to commerce at a extra regular 8x EBITDA (low cost to its friends for being managed) when all of the mud settles. As all the time, admire suggestions, particularly in the event you’re on the bottom in Italy, please share any ideas on the RFP course of.
Disclosure: I personal IGT Jan ’27 LEAPs
