Posted on: October 12, 2021, 08:15h. 

Last updated on: October 12, 2021, 08:30h.

Scientific Games (NASDAQ:SGMS) is getting closer to an Australian initial public offering (IPO) of its SG Lottery unit, and the business could fetch a higher valuation than previously expected.

SG Lottery
Lottery scratchers, one of SG Lottery’s businesses. Scientific Games is getting closer listing the unit in Australia. (Image: Chicago Tribune)

Reports suggest SG Lottery will be valued at 15x earnings, potentially giving the lottery infrastructure enterprise a market capitalization of $6 billion. That’s well in excess of prior estimates. SG Lottery generated $430 million in earnings before interest, taxes, depreciation and amortization (EBITDA) for the 12 months ending June 30.

Previously, analysts forecast an IPO of the unit would command a multiple of 10x or more of that EBTIDA figure. Investment bank Jefferies said earlier this year that an SG Lottery IPO could be valued at $3.44 billion to $5.16 billion.

In an IPO, SG Lottery is expected to raise $5 billion and carry $2.2 billion in debt, reports The Australian.

SG Lottery Announcement Coming Soon

In June, Las Vegas-based Scientific Games revealed plans to divest the lottery business and its sports wagering unit in an effort to reduce debt.

At that time, the company said the businesses could be sold to other firms, merged with a special purpose acquisition company (SPAC) or listed via IPOs. Since then, rumors intensified that Scientific Games is mulling a Sydney listing for SG Lottery because it could fetch a higher multiple in Australia than in the US. Should the SG Lottery IPO happen, it’d be Australia’s largest in more than seven years.

While the bulk of the unit’s earnings and revenue are generated in North America and Europe, Australia is viewed as the preferred destination for the IPO. That’s because investors there are familiar with this type of business and are already displaying enthusiasm for the potential offering.

The parent company is forecasting 2021 earnings before interest, taxes, depreciation and amortization (EBITDA) for SG Lottery, confirming the business is growing. The Australian reports investment bankers working on behalf of Scientific Games are lining up institutional support for the SG Lottery IPO and that those investors are investors are comfortable with the 15x multiple.

One Possible Wildcard

SG Lottery provides the systems used to generate Mega Millions and Powerball tickets, and it’s one of the dominant makers of scratchers and instant games. Just this month, the company announced it landed two 10-year contracts from the Pennsylvania Lottery and a 10-year accord with the Vermont Lottery.

For now, it appears the Aussie IPO could be a go. But it’s also possible a buyer makes a compelling offer to Scientific Games. Last month, speculation surfaced that private equity firm Apollo Global Management (NYSE:APO) is mulling a bid for SG Lottery.

Carlyle Group and TPG Capital, another pair of private equity shops, are also rumored to be interested, but no formal offers have been publicized as of yet.

In late September, Scientific Games announced the sale of the OpenBet sports wagering business to Endeavor Group Holdings, Inc. (NYSE:EDR). That’s the parent company of the Ultimate Fighting Championship (UFC). The price was  $1.2 billion in cash and stock.



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