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 presently 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 identify goes with the slot machine enterprise) which will probably be a world lottery administration enterprise (itself the creation of a merger between Italian Lottomatica with U.S. based mostly lottery operator Gtech in 2006). The lottery enterprise (suppose scratch offs, draw video games, multi-state lotteries) is mostly a great one, it grows at GDP+, has infrastructure like traits, cheap capex necessities, excessive boundaries to entry and secure competitors.
Assuming the cope with Apollo closes, the market is assigning a low valuation to RemainCo:
One cause spinoffs typically work is that they create pure performs that usually commerce a premium to a conglomerate. Often 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 presently being discounted due to income focus (along with the Apollo deal obscuring worth) that turns into extra obvious whenever you break up the enterprise up.
The Italy Lotto makes up practically 40% of RemainCo’s income, in contrast to the U.S. (the place RemainCo may have contracts with 37 of the 48 states/territories which have lotteries), Italy runs its lottery on the federal stage through two contracts (roughly equal in measurement). A type of contracts (Italian Gioco del Lotto recreation) is expiring this 12 months 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 through their De Agostini holding firm (~42% possession, ~60% of the vote) who’re the unique house owners of Lottomatica and customarily appear to be doing proper by shareholders. One potential cause for elevating a whole lot of liquidity this 12 months is the Italian lotto contracts characteristic an upfront fee by the successful bidder, reported to be at the least $1B however possible 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 presently 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 might solely take EV/EBITDA as much as 5.5x. The inventory would in all probability fall a good quantity, however the potential for shareholder returns through a buyback would enhance and doubtlessly 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 laborious 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 case you’re on the bottom in Italy, please share any ideas on the RFP course of.
Disclosure: I personal IGT Jan ’27 LEAPs