Analyst Forecasts a Period of Increased M&A Activity Within the Casino Sector

Analysts expect casino acquisition and merger activity to ramp up, following Caesars’ reported consideration of a takeover bid.

A Period of Strong M&A Activity Might Be on the Horizon

Caesars is currently mulling over selling its business to another party, with Tilman Fertitta and Carl Icahn emerging as some of the potential buyers. Speaking on this matter, Truist Securities’ MD Barry Jones and CBRE’s director of equity research John DeCree projected a possible increase in M&A activity within the broader sector.

As reported by CDC Gaming, De Cree emphasized that the rumored Caesars takeover is still highly speculative. He noted that people familiar with the matter believe that such an arrangement will keep the existing Caesars leadership in place, meaning that things will remain mostly the same for Caesars, even if such a deal were to occur.

Jonas also weighed in on the matter, saying that a potential Caesars takeover is likely to spur a period of intense M&A activity as other board of directors might be encouraged to seek out takeover offers.

DeCree agreed that the gaming sector could see increased M&A activity and was optimistic about a Caesars deal taking place due to the company’s diverse portfolio and the fact that interest rates for large corporations and the spreads are “near record lows.”

Going Private and Investing Abroad Are Viable Options

In the meantime, Jonas noted that some operators might seek to go private and focus on their long-term success, rather than short-term results to satisfy investors. He added that if stock valuations hold indefinitely, more private transactions could occur. Jonas emphasized that many B2B companies within the gaming sector have already gone private.

At the same time, DeCree emphasized that the acquisitions of The Mirage and Venetian came from private entities. However, he noted that such arrangements require significant capital. And companies that possess such capital often recognize the difficulties of targeting Las Vegas. Because of that, many are now targeting emerging markets, with MGM Osaka and Wynn Al Marjan being two of the most prominent such projects.

Las Vegas Remains of Key Importance

Jonas noted that any serious casino company would generally wish to have a presence in Vegas, although the real question is how many properties it would need. DeCree cited Hard Rock’s redevelopment of The Mirage, which took the property offline for several years, as a major recent highlight. However, Jonas noted that Hard Rock is “not your everyday buyer” and that although it makes sense to redevelop lower-end Vegas properties, such moves require special buyers.

In addition to that, not all Vegas investments generate strong returns early on. Jonas noted that Fontainebleau and Resorts World have faced certain challenges and have yet to catch up.

In any case, the Las Vegas Strip slowdown has yet to bleed into the local market, meaning that Sin City investments are still on the table.