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Best of Howard Stutz

Gaming Guru

Howard Stutz

Bally adds SHFL in friendly merger

22 July 2013

LAS VEGAS -- Gavin Isaacs and Ramesh Srinivasan held co-chief operating officer titles at slot machine giant Bally Technologies, Inc. during the company’s stunning growth in the past decade. Isaacs oversaw slot machine development and sales. Srinivasan managed the systems division.

Isaacs, 49, is a former corporate lawyer from Sydney, Australia. Srinivasan, 53, is a native of Chennai, India, with a degree in metallurgical engineering. Isaacs loves sport fishing and boating. Srinivasan is an avid cricket player. Both speak with pronounced accents associated with their native countries.

Last week, they were together at center stage.

Bally announced it was buying gaming equipment provider SHFL Entertainment for $1.3 billion. Srinivasan, now Bally’s CEO, and Isaacs, who became CEO of SHFL in 2011, negotiated the deal, sitting on opposite sides of the table.

“I don’t think it made the negotiations easier,” Isaacs said. “But our friendship made the tougher parts of the discussions much more civil due to the respect we have for each other.”

Srinivasan wouldn’t say how merger talks originated. However, his familiarity with Isaacs helped speed the process.

The deal, in which Bally will pay $23.25 per share of SHFL stock and assume roughly $8 million in debt, was roundly praised by Wall Street. The transaction broadens the slot machine developer’s reach across the casino floor into nontraditional casino games, table-game management equipment and electronic table games.

“On the positive side, this is a transformational acquisition for Bally which enhances the diversification and reach of its business model,” Janney Montgomery Scott gaming analyst Brian McGill told investors.

The deal is also about the cultures of the two companies — both based in Las Vegas.

Srinivasan said the transaction is a blending of two “customer-centric” businesses with “innovation-oriented cultures.”

“These companies are growing,” Srinivasan said. “They have both done phenomenally well in the recent past, and with respect to cultures, it is about as good a fit as you’ll ever find.”

The transaction, which requires regulatory approvals and the sign-off from SHFL shareholders, will take at least until next June to complete. In the interim, Bally will create an integration team to explore the similarities and differences between the companies.

For now, it’s about operating businesses separately.

“Gavin and I and the rest of our management teams have a very important job to do,” Srinivasan said. “We have important responsibilities to our employees, customers, and shareholders, and we will be very focused on that.”

Analysts said the deal clearly strengthens Bally and weakens other slot machine companies. SHFL’s business units will give Bally access into other casino equipment areas. SHFL also has a strong foothold in the expanding Asian and Australian gaming markets, another plus for Bally.

Many analysts said the focus is on slot machine giant International Game Technology. “At present, IGT is operating in a low-expectations and essentially no-growth environment,” Deutsche Bank gaming analyst Carlo Santartelli said.

Other analysts speculated on the next merger among equipment manufacturers, following lottery provider Scientific Games’ $1.5 billion purchase of slot machine maker WMS Industries, which is expected to close by the end of the year.

“As the gaming equipment manufacturer sector continues to consolidate, investors continue to search for the next takeout candidate,” said Brean Capital gaming analyst Justin Sebastiano.

The other factor in the Bally-SHFL deal is Isaacs, who may have experienced one of the shortest CEO tenures ever in the gaming industry.

The ironic thing is that he didn’t move into the job to sell SHFL. Quite the opposite. Unlike other CEOs, his management contract contained no bonus for selling the company.

“Our objective was to create a great company and a great working environment,” Isaacs said. “It was amazing how quickly the employees got behind our goals. Easily, this has been the best two years of my life, working here.”

He said SHFL will finish building and move into its new 110,000-square-foot corporate facility near Jones Boulevard and Interstate 215 before summer is out.

Isaacs spent seven years with Australian slot machine developer Aristocrat Technologies before joining Bally in 2006.

Srinivasan joined Bally in 2005 and was elevated to CEO in 2012.

Several analysts, in commenting on the deal, were quick to point out Isaacs’s former role with Bally, leading some to ask if there is a role for him when the deal closes. His focus is to run the business and deliver it to Bally.

But Isaacs couldn’t resist when asked about “social issues” between Bally and SHFL during a conference call with analysts. “You’re talking about Ramesh and my accents, or are you talking about the culture of the company?” Isaacs said.