Why Scientific Games Abandoned Australian Ipo For Brookfield

The deal was to set to be a boon for the Australian market. Scientific Games is known for its slot machines and lottery products, and the multi-billion-dollar company was prepared to list its lotteries sector in an Australian IPO worth $5B. And then it didn’t. Scientific Games ultimately sold its lottery business to Brookfield Business Partners, a Canadian-based private equity firm.

What happened?

Australian Origins

The origins of Scientific Games date back to 1917. An entrepreneur named George Julius – originally from England but long-lived Australian – created the first automatic totalizator for parimutuel racing. Simply put, the machine was a large display screen that towered over a racetrack to show odds and payoffs for participating horses. He pitched his project to the Australian government as a way to reduce fraud in elections, but they rejected it.

So, he developed it for racetracks. He founded Automatic Totalisators Limited in 1917. The first machine operated at a New Zealand racecourse called Ellerslie and the second at Gloucester Park in Western Australia. Tracks around the world, including in the United States purchased the machines.

In 1989, a United States company called United Tote bought Autotote, and when the company had to split due to antitrust violations, the basis of it retook the Autotote name.

In the year 2000, Autotote bought Scientific Games Holdings for $308M. That company had been in business since 1973 and was responsible for the first instant lottery ticket distributed on a large scale. After the sale, the company officially became Scientific Games Corporation.

Today, the company is known for its many acquisitions. Some of its most well-known subsidiaries include Bally Technologies, WMS Industries, Shuffle Master, and NYX Gaming Group. With a massive collection of gambling equipment and brands under its umbrella, the company is based in Las Vegas. And it is now worth approximately $8B.

Returning to Its Roots

In a roundabout way, the news made sense. Reuters reported that Scientific Games was in the process of listing its lotteries unit in Australia. It pitched the idea to fund managers with the intent to value that unit at more than $10B. The IPO would have been worth approximately $5B, the largest in Australia in more than seven years.

Scientific Games did not confirm or deny the well-sourced information.

The choice of Australia was not so much due to the company’s origins but because of the popularity of lotteries in Australia. A lottery-based IPO would likely have had significant support among investors. Case and point, Tabcorp Holdings.

The five investment banks in consultation with Scientific Games included Macquarie Group. Discussions included the benefits of high margins and long-term contracts, not to mention the company’s resilience during the pandemic and its continued growth over the years.

SG Sells Lottery Business

Only a little more than a month from the initial reports – and still with no confirmation from Scientific Games – the company made an entirely different announcement. It sold its lottery business to a private equity group called Brookfield Business Partners, based in Toronto.

The value of the sale was $6.05B. Brookfield offered $5.825B in cash and the rest in an earn-out based on EBITDA targets in the next two years. They hope to close the deal by the end of the second quarter of 2022.

Scientific Games President and CEO called the deal “transformative in accelerating the delivery of our stated strategy to optimize our portfolio, aggressively de-lever our balance sheet, and position us to invest in future growth.” The option to divest the lottery business would purportedly give the company the chance to expand its portfolio while maximizing proceeds and seize new opportunities.

What Does It All Mean?

Investors decided to put up $3B for the IPO. The investment stemmed from approximately 15 institutions to put in for the cornerstone stakes. And after that bid, a week passed without any response. Then, SG announced the Brookfield deal.

If Scientific Games had completed the IPO, Bloomberg reported that the company would have retained a 45% to 50% stake in the company. But since Brookfield offered a full sale, Scientific Games felt that option was more inline with the overall growth strategy.

Australia’s stock market had been down overall since a peak in August. The economic recovery from very long lockdowns and a slow healing from the pandemic damage may have contributed to a bit of a drop in recent months. The uncertainty behind the trajectory of the Australian market may have contributed to some doubt about the long-term effects of the bid.

Another reason behind the sale to Brookfield was the quicker result, with the proceeds sooner available for balance sheet reconciliation and more investments.

 

Rose Varrelli avatar
Rose Varrelli
Senior Casino & News Writer

Hi there! I’m Rose, and with nine years behind me in the iGaming industry, I craft engaging narratives at CasinoAus. My education in Communication across Europe has sharpened my skills in fintech, casino legislation, and digital marketing. Backed by a strong foundation in SEO, storytelling, and cross-cultural communication, I’m passionate about creating content that resonates globally and educates our audience.

Subscribe For Exclusive Offers And Content!

Sign up for exclusive content: casino bonus offers, articles, eBooks, and the latest news. Now directly in your inbox!