International Game Technology (IGT) (~$3.5B market cap) is a gaming supplier, the result of a 2015 merger of IGT and Gtech that is currently being unwound. The historical IGT business is a video gaming terminal (slot machine) business, it is being spun in Q3 2025, merged immediately with smaller peer Everi Holdings (EVRI) in a reverse morris trust and the combined IGT/Everi will then be acquired by Apollo Global. The end result is a $4.05B cash payment, before taxes and expenses (estimated at $400MM), to RemainCo (the IGT name is going with the slot machine business) which will be a global lottery management business (itself the creation of a merger between Italian Lottomatica with U.S. based lottery operator Gtech in 2006). The lottery business (think scratch offs, draw games, multi-state lotteries) is generally a good one, it grows at GDP+, has infrastructure like characteristics, reasonable capex requirements, high barriers to entry and stable competition.
Assuming the deal with Apollo closes, the market is assigning a low valuation to RemainCo:
There are only a few lottery competitors, closest peer Scientific Games (now Light & Wonder, ticker LNW)
sold their lottery business in 2022 to Brookfield for about 11x EBITDA, Intralot (Greek based) trades for 9.5x, La Fancaise des Jeux trades for 9x and The Lottery Corporation (2022 spin from Tabcorp in Australia) trades for 16x. Proforma RemainCo is trading well below all of these at ~5x EBITDA.
One reason spinoffs sometimes work is they create pure plays that generally trade a premium to a conglomerate. Occasionally there are some downsides to breaking a company up, here while RemainCo should trade at a premium to the slot machine segment, my guess is it's currently being discounted because of revenue concentration (in addition to the Apollo deal obscuring value) that becomes more apparent when you split the business up.
The Italy Lotto makes up nearly 40% of RemainCo's revenue, unlike the U.S. (where RemainCo will have contracts with 37 of the 48 states/territories that have lotteries), Italy runs its lottery at the federal level via two contracts (roughly equal in size). One of those contracts (Italian Gioco del Lotto game) is expiring this year and the bidding process is competitive. Lottoitalia (a joint venture that IGT owns 61.5%) has run the contract since the 1990s, good time to mention that IGT is controlled by an Italian family via their De Agostini holding company (~42% ownership, ~60% of the vote) who are the original owners of Lottomatica and generally seem to be doing right by shareholders. One potential reason for raising a lot of liquidity this year is the Italian lotto contracts feature an upfront payment by the winning bidder, reported to be at least $1B but likely will end up being more. IGT accounts for the upfront fee as an asset that is then amortized straight line over the 9 years of the contract (they do remove the upfront amortization in their adjusted EBITDA metric). The request for proposal was issued a couple weeks ago with a March 17th deadline, a reported other bidder is a consortium led by Flutter Entertainment (FLUT), which admittedly is a formidable, well financed competitor (but lottery is currently a negligible piece of their business). My guess is IGT/RemainCo will do what it takes to win the contract, even if it means overpaying on the upfront fee.
But if they don't, the stock still seems pretty cheap to me:
By removing the $1B upfront fee and ~$250MM in EBITDA (my guess, hoping that's overly conservative), it would only take EV/EBITDA up to 5.5x. The stock would probably fall a fair amount, but the potential for shareholder returns via a buyback would increase and potentially offset some of that decline. They've publicly stated their plan is to paydown $2B in debt, uses for the remainder of the Apollo funds hinge on the Italian Lotto bid, but they've stated some will go to shareholders in form of a buyback or special dividend.
Incumbents are hard to beat, especially ones so deeply entrenched, I think the Apollo transaction and Italian Lotto RFP fears are obscuring a really good business that should trade at a more normal 8x EBITDA (discount to its peers for being controlled) when all the dust settles. As always, appreciate feedback, especially if you're on the ground in Italy, please share any thoughts on the RFP process.
Disclosure: I own IGT Jan '27 LEAPs
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