Brookfield Business Partners LP to acquire Lottos from Scientific Games for $5.8bn

January 2022 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

January 2022 Issue

Scientific Games has agreed to sell its lottery division to private equity firm Brookfield Business Partners.

Under the terms of the deal, Brookfield will pay a cash consideration of $5.825bn for the business, with an additional $225m payable as an earn-out, subject to achieving certain earnings before interest, taxes, depreciation and amortisation (EBITDA) targets in 2022 and 2023.

The transaction remains subject to customary closing conditions including regulatory approvals, but is expected to complete in the second quarter of 2022.

Brookfield intends to fund approximately 30 percent of the equity on closing from existing liquidity on-hand and capital which will be raised from internal initiatives currently underway. Brookfield also recently increased the availability on its credit facilities by $500m to maintain a strong corporate liquidity position. The balance of the equity investment is expected to be funded by institutional partners. Prior to or following closing, a portion of Brookfield Business Partners’ commitment may be syndicated to other institutional investors.

The Scientific Games’ unit, which sells wholesale lottery system services to clients in more than 50 countries, is expected to see a 14 percent rise in adjusted EBITDA to $498m in fiscal 2022.

“We are pleased to continue to grow our business with the acquisition of a market leader and essential service provider to governments around the world,” said David Nowak, managing partner of Brookfield Business Partners. “We look forward to partnering with management and bringing our global scale and capabilities to support Scientific Games Lottery’s future growth.”

“This transaction is transformative in accelerating the delivery of our stated strategy to optimize our portfolio, aggressively de-lever our balance sheet and position us to invest in future growth,” said Barry Cottle, president and chief executive of Scientific Games. “We conducted a thorough review of paths to divest the Lottery business and we are confident that this transaction maximizes value and certainty while minimizing complexity and execution risk, and positions both Scientific Games and SG Lottery for continued success along their unique growth trajectories.

“The significant near-term proceeds from this transaction as well as our previously announced sale of Sports Betting will transform our balance sheet and provide the financial flexibility to invest organically and inorganically to accelerate our strategies,” he continued. “This marks a major milestone and puts us on a clear path to achieve our vision to become the leading cross-platform global game company and unlock our full value for shareholders.”

“We are thrilled with this outcome and what it means for the future of Scientific Games Lottery and our customers,” said Patrick McHugh, chief executive of Scientific Games Lottery. “I am confident that, with Brookfield’s support, we will have the flexibility and agility to expand our deep product portfolio to meet our customers’ evolving needs and maximize lottery beneficiary proceeds across the globe, enabling us to capture the significant opportunities we see ahead.”

Financing for the deal will be led by a syndicate of banks including Barclays, Deutsche Bank Securities, BNP Paribas, Credit Agricole Corporate and Investment Bank, Macquarie Capital and RBC Capital Markets. Cleary Gottlieb Steen & Hamilton LLP is acting as legal adviser to Brookfield.

Brookfield Business Partners is the flagship listed business services and industrials company of Brookfield Asset Management, a leading global alternative asset manager with over $625bn of assets under management.

The sale of Scientific Games’ lottery unit has put an end to speculation that the company was preparing to list the business on the Australian Securities Exchange as part of efforts to reduce its overall debt. In June 2021, Scientific Games revealed plans to divest its lottery and sports betting businesses to deleverage and provide the resources to further invest in digital.

Richard Summerfield