Strategic Mergers and Acquisitions Anticipated for Aristocrat, Predicts Fitch Ratings
Fresh Perspective: Aristocrat Leisure, a global gaming powerhouse, just got the green light from Fitch Ratings, maintaining their "BBB-" Long-Term Issuer Default Rating with a steady outlook. This approval stems from Aristocrat's solid business profile as a gaming supplier, low gross leverage, and a robust balance sheet.
Aristocrat's Money Moves
This endorsement signals Aristocrat's intention to continue managing its finances wisely, investing in its existing portfolio, returning cash to shareholders, and exploring potential acquisitions. With a strong financial standing, Aristocrat can effortlessly fund small to mid-size acquisition deals and substantial share repurchases, all while maintaining fiscal prudence.
Aristocrat's financial strength is supported by its proven ability to maintain a healthy balance sheet and adhere to financial targets—enabling it to maneuver in the gaming market with confidence.
Improved liquidity and manageable net leverage have emerged over the last 18 months due to a AUD 1.3 billion equity raise. Although the intended acquisition of Playtech didn't materialize, the proceeds have served as a solid foundation for Aristocrat's financial stability. Moreover, consistently high operating cash flow reinforces Aristocrat’s robust financial position.
Expect M&As in the Real-Money Gaming Sector
As a leading supplier of slots in Australia and a top-three player in North America, Aristocrat owes its success to its North American gaming operations segment, which consistently generates recurring revenue and substantial profit margins, albeit with some capital intensity. Aristocrat controls about 20% of total slot sales in the United States and a greater share of premium install units. Its North American gaming operations footprint comprises approximately 30,000 machines as of September 2022, marking a significant increase from five years ago.
Embracing the trend, Fitch anticipates Aristocrat to engage in M&A activities, especially in the real-money gaming (RMG) sector, following its unsuccessful 2022 acquisition attempt of Playtech. Aristocrat's digital business has significantly grown through strategic M&As and substantial investments in new content. Notably, acquisitions of Plarium and Big Fish boosted Aristocrat's digital business from accounting for 16% of total revenue in 2017 to 46% at the end of 2022.
One potential acquisition Aristocrat may be eyeing is Interblock, a significant player in the increasingly popular electronic table game (ETG) market. With competitors like Light & Wonder and others already making their presence felt, Aristocrat stands to bolster its ETG market presence via this acquisition. There are rumors of a deal worth anywhere between $1 billion and $1.3 billion, although official confirmation remains elusive.
Despite the competitive digital market and required investment in R&D and customer acquisition, Aristocrat's digital products have created a valuable diversification of its core business, particularly evident during the pandemic. However, volatility in operating cash flow is a possible side effect, which Aristocrat has historically been able to manage effectively.
As Aristocrat prepares for its next investor day in May 2025, stay tuned for any official announcements regarding potential M&A activities. Beyond Interblock, Aristocrat might pursue opportunities that align with its objectives of expanding into emerging markets or strengthening its offerings in interactive and real-money gaming segments. Keep a close eye on Aristocrat as it moves to consolidate its position in the gaming industry.
- Aristocrat Leisure, maintaining a "BBB-" Long-Term Issuer Default Rating with a steady outlook, will continue to manage its finances prudently in 2022, leveraging its strong financial standing to invest in its portfolio, return cash to shareholders, and explore potential acquisitions.
- M&A activities, particularly in the real-money gaming sector, are expected from Aristocrat following its unsuccessful 2022 acquisition attempt of Playtech. One possible acquisition Aristocrat may consider is Interblock, a significant player in the electronic table game market, which could bolster Aristocrat's presence in this competitive segment.
- Aristocrat's financial stability, improved by increased liquidity, manageable net leverage, and consistent high operating cash flow, has allowed it to fund small to mid-size acquisition deals and substantial share repurchases effectively while adhering to financial targets.
