Just this once - Lottomatica’s cash flow appeals but not expected to lead to resurgence of gambling IPOs

Data InsightECM Explorer 21 April

Just this once - Lottomatica’s cash flow appeals but not expected to lead to resurgence of gambling IPOs

Italy is bracing for the opening of the books on the Lottomatica deal, the gambling machine operator backed by Apollo Global Management [NYSE:APO], but it is not expected to lead to a flood of gambling IPOs given concerns over the sector’s social impact.

Some buyers might be allowing themselves to turn a blind eye though.

On Thursday, the company set its initial public offering range at EUR 9 to EUR 11 per share, implying a market capitalisation of between EUR 2.265bn and EUR 2.67bn, according to an announcement.

Lottomatica is generating some interest given a corporate story marked by high profitability and strong financials – its adjusted EBITDA was EUR 156m for the first three months of 2023, according to a release.

Publicly listed Entain [LON:ENT], Flutter [LON:FLTR] and 888 [LON:888] have been put forward as close comparables in the early looks for Lottomatica, and have been regular names in European ECM.

Gambling and gaming have found positive fortunes in the capital markets in the past. According to Dealogic data, the best years for the sector’s ECM activity in Europe were 2020 and 2021, when deal volume reached USD 6.5bn and USD 6.4bn respectively. Another year strong for issuance was 2017, when deal volume stood at USD 1.7bn.

Since then though, there has been a hiatus in issuance with some pointing to ESG concerns for the sector.

“We would never look at it because gambling is not in our investment strategy - far from ESG-friendly,” an investor said.

“It is good to have something on the road but there is reason to be cautious about making one deal equal to an improvement in the IPO market,” said an ECM banker. “Betting companies come with their own local histories and legal frameworks, making these complex stories to market in front of investors,” he added.

Indeed, not all gambling companies have found the same appetite in the public markets. Italy-based operator Sisal, formerly backed by CVC, had pursued an IPO though in the end it was acquired by Flutter.

But a second ECM banker praised Lottomatica as a more-than-adequate curtain-opener for the spring window. It is a business with a defensive profile and good visibility on its earnings and margins, he said.

All bankers interviewed for this article agreed that Lottomatica is a cash cow and has the fundamentals to be a success. But they said it is largely seen as an outside listing to be judged on its own merits, rather than pointing to growing demand for the sector.

Among the ways to circumvent the dangers of gambling’s bad rep was a focus on its technology investments and ambitious M&A strategy, a source close to the deal said.

Another source close to the deal said that the slot machine company is part of Italy’s social fabric and therefore it is just not seen as controversial.

“People have been told smoking kills them, that this generation will suffer from economic downturns. Investors won’t be put off by a single innocent vice,” he said.

In times when there is a shortage of IPOs, people are ready to take a punt on a gaming company, perhaps just this once.

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