Scientific Games to Sell Its Lottery Business in $6B Deal Designed to Pay Debt

Gambling machine maker Scientific Games Corporation, (Nasdaq: SGMS) is set to sell its lottery business to Canadian investment company Brookfield Business Partners L.P. (NYSE: BBU) in a $6.05 billion deal announced Oct. 27. The deal is aimed at reducing debt and increasing shareholder value and growth.

Pursuant to the agreement, the $6.05 billion consideration consists of $5.825 billion in cash and an earn-out of up to $225 million based on meeting certain EBITDA targets in 2022 and 2023.

“This transaction is 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,” Barry Cottle, President and Chief Executive Officer of Scientific Games said in the press release.

According to the press release, Scientific Games Lottery business is “a leading, diversified global lottery partner” for 130 government and non-government entities in more than 50 countries providing a “suite of turn-key solutions covering the entire lottery system,” including instant and terminal-generated lottery games, sports betting, lottery systems, and the iLottery market, among others. Scientific Games stated that its lottery business is the market leader for instant games. Meanwhile, alternative asset management company Brookfield Asset Management entity Brookfield Business Partners is the business services and industrial operations vehicle for its parent company.  

“We are pleased to continue to grow our business with the acquisition of a market leader and essential service provider to governments around the world,” David Nowak, Managing Partner, Brookfield Business Partners, said in a statement. “We look forward to partnering with management and bringing our global scale and capabilities to support Scientific Games Lottery’s future growth.”

For Brookfield, the investment was attractive because of Scientific Games Lottery’s strong market position, operation in a resilient industry with good margins and low ongoing capital requirements, favorable market dynamics such as its ability to meet regulatory frameworks and the available growth opportunities, according to information provided by Brookfield.  

Las Vegas-based Scientific Games has been divesting assets after reaching $8.2 billion in net debt as of June 30, 2021 compared to $8.5 billion the year before. In 2021, the net debt leverage ratio was 7.2, according to company financials. In September it announced it was selling its sports betting division, OpenBet, to Endeavor Group Holdings for a $1.2 billion cash and stock deal. In June, the company announced its plans to divest its lottery and sports betting businesses to de-lever and position the company for enhanced growth, while focusing on content and digital markets.

Both parties to the transaction saw a slight uptick to their stock price in the day after the announcement of the deal.

Scientific Games is represented by Cravath, Swaine & Moore LLP. Brookfield is represented by Cleary Gottlieb Steen & Hamilton LLP

Brookfield will use about $2.6 billion of equity for the transaction, funding 30% itself with the rest coming from institutional partners.

The deal is expected to close in Q2 2022 pending regulatory approval and customary closing conditions.