Rail Caesar: Race holding in sight

$1.7B acquisition of Indiana properties marks emergence from insolvency

Caesars Entertainment Corp. has agreed to buy Indianapolis-based horse racing company Centaur Holdings LLC for $1.7 billion in the largest acquisition in the U.S. gaming sector this year.

The deal is expected to close in the first half of 2018.

Caesars will acquire Hoosier Park Racing and Casino in Anderson, Indiana, as well as the Indiana Grand Racing and Casino in Shelbyville, Indiana, the company said in a statement late Thursday. Both racetracks feature 2,000 slots and own entertainment and dining facilities.

The deal marks the re-emergence of Caesars, which has been sidelined for years as its operating unit battled insolvency caused by a debt-driven expansion strategy and an economic downturn.

Caesars Entertainment Operating Co. filed for bankruptcy in January 2015 and emerged from bankruptcy a month ago. The company’s last major acquisition was the purchase of Planet Hollywood in Las Vegas for $700 million in 2009.

Chief Executive Officer Mark Frissora is aiming to create value through acquisitions by leveraging Caesars’ supply chain and Total Rewards loyalty program, which has 50 million participants.

Centaur properties receive

6.5 million visitors a year and

CAESARS

have 1.1 million loyalty members. Centaur customers would be able to spend their points acquired in Indianapolis during a trip to Caesars’ properties in Las Vegas.

“We anticipate that the deployment of Total Rewards will bring substantial benefits to current Centaur customers, and the implementation of our centralized supply chain and efficient operating model will drive synergies,” Frissora said in a statement.

Caesars will pay $1.63 billion upfront and $75 million in deferred compensation. Caesars did not disclose how the deal would be financed. The company has about $2 billion of cash on its balance sheet, according to Union Gaming analyst John Decree.

The price represents an implied multiple of 8.3 times Centaur’s earnings before interest, taxes, depreciation, amortization and rent costs in year two following the closing of the deal, inclusive of expected synergies, Frissora said in the statement.

If table games are installed, the effective purchase price would be less than 7 times by that time, he said. The Indiana Legislature enacted a law in 2015 that allows racinos to add table games in 2021.

“This deal will be a field test of the power of the Total Rewards loyalty program,” said Suntrust analyst Patrick Scholes. “Caesars has seen significant revenue uplift in the past when it has installed the network on properties.”

Sector consolidation

The U.S. gaming sector has experienced more consolidation in recent years as the huge debt burdens caused by the recession recede.

Many operators like Caesars now have stronger balance sheets and are using that to build on organic growth that is in the single digits.

They are finding willing sellers among private equity firms that bought casinos either right before or right after the Great Recession, said Union Gaming’s Decree.

“We are seeing a wave of private equity firms exit as their ownership life cycles come to an end, and valuations are strong,” he said. “It is a good time for many of these companies to sell.”

Private equity firms’ investment cycle may last from three to seven years, though economic slowdowns can cause firms to hold on for longer periods.

Golden Entertainment agreed to buy American Casino & Entertainment Properties, the owner of the Stratosphere, in June for $850 million.

A month earlier, Meruelo Group, the owner of Grand Sierra Resort, agreed to buy the SLS Las Vegas for an undisclosed sum. Both American Casino and SLS were owned by private equity groups.

More to come?

Caesars may soon scoop up more gaming assets, Frissora hinted in the statement.

“We have a strong financial position with solid cash flows to pursue other expansion opportunities with attractive returns,” he said

The acquisition trend will most certainly continue in the new year, said Decree.

“There will be more consolidation and deals in 2018, as there are almost no available gaming licenses up for grabs,” he said.

Caesars shares closed down 43 cents, or 3.33 percent, at $12.32 on Friday.

Contact Todd Prince at tprince@ reviewjournal.com or 702-383-0386. Follow @toddprincetv on Twitter.