Fancy a flutter on the Italian gaming market? Private equity group Apollo is seeking to list Lottomatica, the country’s leading operator, for a reported €5bn. As a proven consolidator of the fragmented Italian gaming sector, Lottomatica has a buzzy equity story to tell. But, with the world’s stock markets throwing a collective wobble, Lady Luck is not on Apollo’s side.
Lottomatica — which has just over a quarter of the Italian gaming market — wants to continue to snap up minnows and gain scale. That is sensible, given the savings available as gambling moves online. But it needs to sell shares to reduce leverage and to use as a currency for future acquisitions.
The group had €1.7bn of net debt at the end of 2022 — equivalent to 3.3 times 2022 ebitda of €520mn, adjusted to include future cost savings. That means Lottomatica probably needs to raise €400mn of equity in order to reach its target leverage of 2.5 times ebitda. Apollo would then sell its own holdings down to bring the free float to the minimum 25 per cent listing threshold.
How much might Lottomatica be worth? The group has three main businesses — none of which, despite its name, is the National Lottery. Online betting will account for about half of this year’s estimated €560mn of ebitda. If it were valued at 12 times ebitda — a discount to UK-listed Entain and highly rated Flutter — it might be worth €3.3bn.
Moving to the realm of the bookies, sports betting made €100mn of ebitda last year and might be worth €800mn-€900mn. The bigger but less exciting slot machine business might come in at a similar amount. That would yield a total valuation in the region of €5bn. A blended multiple of about 9 times ebitda is in line with peers.
The question, then, is about what sort of discount Apollo might have to offer to get the shares out of the door. That will, to some extent, depend on markets. But Lottomatica — with plenty of growth and a well-regarded management team — looks an attractive long-term wager for punters who can quell ethical qualms concerning the gambling industry.
Lex: a sum of the pars exercise
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