Fitch Ratings Predict Australia’s Aristocrat Leisure To Pursue Strategic M&A’s

Summary

• Fitch ratings predict Aristocrat Leisure will pursue new M&A’s
• Aristocrat expected to make a move to acquire Playtech Plc.
• Gaming Revenues to reach pre-pandemic levels by 2022

In a report released on 26 April 2022, credit rating agency Fitch Ratings Inc., said that Australia-based slot machine manufacturer Aristocrat Leisure Ltd. will make bold strides by pursuing significantly large mergers and acquisitions (M&A) due to its excess cash balances supported by an equity of A$1.3 billion. Aristocrat intended to use the equity to acquire London-listed gaming content provider Playtech Plc.

BBB- Rating Reflects Aristocrat’s Strong Market Position

The agency assigned a ‘BBB-’ rating to the company’s US$500 million security revolver. The rating reflected Aristocrat’s stable market position and a conservative credit profile based on robust low-leverage free cash flow. Fitch forecasted that the free cash flow margin would continue to be strong. Aristocrat Technologies Australia Pty Ltd. and Aristocrat Technologies Inc. play the debtors in the new establishment.

Fitch predicted that the company might pursue some strategic M&A in the real-money gaming sector with annual tuck-in acquisitions of about A$100 million. There will also be a small debt paydown with the allocation to tuck-in M&A and dividends, relative to the company’s excess cash balances. A strong credit profile will enable Aristocrat to fund future acquisitions consistent with the ‘BBB-’ leverage metrics. The company’s gross leverage might exceed Fitch’s 2.5 times downgrade sensitivity for M&A, albeit temporarily, provided it comes with a dependable de-leveraging path.

Previously, in October 2021, Aristocrat had offered US$2.9 billion in cash to acquire Playtech. The bid failed to muster the necessary support for the proposal from Playtech shareholders and was thus, unsuccessful. The deal would have been financed with an entitlement offer of A$1.3 billion, about A$1.1 billion in cash, and a term loan of A$2.8 billion.

Fitch said that Aristocrat’s liquidity was quite strong as it possessed excess cash of about A$4 billion pro forma for the A$1.3 billion equity intended for the Playtech takeover, along with its multi-million security revolver.

Gaming Revenues to Reach Pre-Pandemic Levels by 2022

The agency forecasted that Aristocrat’s gaming revenues might grow further given its thriving gaming operations in North America. The figures might achieve the pre-pandemic performance by 2022 as operating environments continue to normalize, despite the sluggish pace of the digital revenue growth. As per Fitch, the gaming equipment manufacturer will be looking at a solid, mid-to-high single-digit growth in the long run.

In November 2021, Aristocrat reported its fiscal year-end revenue to be almost A$4.74 billion, 14.4 percent more than the figures in 2020.