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Small merger may signal big changes

By numbers alone, the merger of Golden Gaming and Lakes Entertainment doesn’t equal any one of the combined $18.5 billion in gaming equipment manufacturing buyouts that have happened in the past 18 months.

But the transaction between Nevada’s largest tavern owner/slot machine route operator and the Minnesota-based casino company might signal consolidation in the regional gaming market.

At the very least, small casino companies could use the Golden-Lakes deal as a guide in accessing public capital markets, which could help finance buyouts, refinance debt or enhance capital improvement budgets.

“We’ll see some movement as these companies look to raise capital,” one analyst said.

Gaming manufacturing companies gobbled up each other six times since 2013, starting with the $1.5 billion buyout of WMS Industries by Scientific Games Corp. The feeding frenzy ends this spring when GTECH Holdings finalizes its $6.4 billion purchase of International Game Technology.

Analysts widely speculated that Pinnacle Entertainment’s $2.8 billion acquisition of regional gaming rival Ameristar Casinos in 2013 would have triggered consolidation on the operations side. But regional markets faced competitive challenges and have only recently showed signs of recovery.

“Solid data points continue to trickle in,” Macquarie Securities gaming analyst Chad Beynon wrote last month after regional markets had a combined 5 percent revenue increase during December.

The straight merger between Golden Gaming and Lakes Entertainment could trigger other deals.

Golden Gaming CEO Blake Sartini and his family, which built the company in 2001 on the foundation of Southwest Services, will own 35.7 percent of the newly formed Golden Entertainment. Current shareholders in Lakes will get the remaining 64.3 percent of the business.

Lakes operates the Rocky Gap Casino Resort in Maryland. The transaction was valued at $9.57 per share on Jan. 26 — a market capitalization of more than $128.1 million.

The merger is expected to be completed by the end of the year and Golden Entertainment will be listed on Nasdaq.

That transition into a publicly traded entity pulled the cover off Golden’s previously private financials.

On a conference call with analysts and investors two days after the deal was announced, Sartini, who will become CEO and chairman of the new company, gave some color to the company’s status in Nevada.

Golden operates more than 7,600 slot machines in 650 locations statewide through its route business — more than double its nearest competitor. The company owns 48 taverns through five brands and three Pahrump casinos, which account for more than 70 percent of Nye County gaming revenue.

“Collectively, Golden Gaming owns and operates nearly 8,700 gaming machines, has approximately 2,000 employees and is expected to generate nearly $300 million in net revenue and over $36 million of (cash flow) in 2015,” Sartini said in prepared remarks.

Lakes brings to the business a balance sheet with $80.7 million in cash as of the most recent quarter and the 200-room Rocky Gap, a resort in Maryland’s Rocky Gap State Park that overlooks a lake and has a Jack Nicklaus Signature Golf Course.

The casino, which collected $43.2 million in gaming revenue in 2014, had just 4.6 percent of the overall Maryland market. But as a destination resort, it doesn’t fight the Horseshoe Baltimore and Maryland Live! for customers from the busy Baltimore-Washington corridor.

The merger is about the future. Sartini said the company will seek additional regional casino opportunities and will look to extend route operations outside of the Nevada. He sees opportunity in 70,000 gaming machines and video lottery terminals in states such as Illinois, Louisiana, Montana, Oregon, West Virginia and South Dakota.

“We are evaluating entering all these jurisdictions,” Sartini said.

The new access to the public markets also means an additional vehicle for financing.

Other regional gaming companies could be exploring their options.

Last year, Las Vegas-based Full House Resorts went through a management shake-up and brought in veteran gaming executive Dan Lee as CEO. Reno-based Eldorado Resorts merged with West Virginia-based MTR Gaming Group in an all-stock deal. There is renewed interest in St. Louis-based Isle of Capri Casinos.

Penn National Gaming’s real estate investment trust spin-off, Gaming and Leisure Properties, is seeking additional casinos — as well as potential management companies.

The regional market is fluid.

The Golden-Lakes conference call was brief and questions were not asked of Sartini and Lakes CEO Lyle Berman, who will join the Golden Entertainment board with a three-year consulting agreement.

But there is a multitude of speculation moving forward.

Howard Stutz’s Inside Gaming column appears Wednesdays and Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Follow on Twitter: @howardstutz.

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