You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends.

Insights

Chart of the Week: A distinctive characteristic of Carlyle’s portfolio operations team is its extensive experience. On average, a Carlyle operating executive has 35 years of professional experience, with 29 years specifically in industry roles. In comparison, a management director at KKR Capstone usually has 21 years of experience, including only three years in industry. This highlights Carlyle’s preference for executives with significant industry tenure. (Read More)

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Spotlight

Learning from the past, or gambler’s fallacy? Apollo Global Management is rolling the dice yet again on the gambling industry, betting $6.3 billion in an all-cash transaction to acquire the gaming and digital business of International Game Technology (IGT) and merge it with Everi Holdings, a slot machine maker and casino service provider.

Apollo will be taking both businesses private in the process, with Everi shareholders receiving $14.25 per share (a 56% markup from July 25th’s closing price) and IGT receiving a lump sum of $4.05 billion. De Agostini, the majority shareholder of IGT, will retain a minority stake in Apollo’s new venture.

It’s not Apollo’s first bet on the betting space. Just two years ago, Apollo exited PlayAGS after nearly a decade of ups and downs with the company. Apollo acquired what was then American Gaming Systems, a slot machine and casino equipment manufacturer, in 2013 for $215 million, sinking another $100 million in its PlayAGS rebrand and expansion. 

In stark contrast to the firm’s IGT-Everi deal, Apollo made the decision to IPO PlayAGS in January 2018. The initial asking price per share was between $16 and $18, though it quickly surged to $18.50, with Apollo in line to make a 2.8x return on its investment. By August, shares were trading at a high of $32. 

Then, it all came crashing down. Over the course of 2019, share prices dropped from upwards of $25 to the $10 to $12 range. Covid then sped along the death spiral; by October 2020, shares were closing around $2.70. Apollo exited the company for good at the end of 2022, when its stock was closing at $6.35, valuing its total stake at just $52 million. In May, Brightstar Capital Partners launched a $1.1 billion bid to take PlayAGS private, which is still ongoing.

Perhaps the private play with IGT-Everi will save Apollo from repeating those highs and lows, but even that was a shaky strategy in the past for the firm. In 2008, Apollo and TPG infamously spent $27.8 billion to take Harrah’s Entertainment private. By 2015, Harrah’s had become Caesar’s Entertainment and was filing for Chapter 11 bankruptcy. In 2017, when Caesar’s exited bankruptcy, Apollo and TPG held a minor 16 percent stake that it later sold off for $323 million in 2019. 

Why buy? Despite Apollo’s poor performance in the past with gaming, there are still key avenues for growth for IGT-Everi. The deal includes IGT’s digital sports betting business, which is a booming industry. Online sports betting revenue is slated to increase by 10.7% per year over the next five years, making its projected 2029 market volume $23.8 billion.

Also, the B2B nature of Everi’s slot machine business makes the acquisition a more reliable buy. Slot machines are typically leased, creating steady and high cash flows that amounted to 70% of Everi’s sales as of March 2023. 

Apollo isn’t alone in its bullishness on gambling and gaming – many of its competitors are getting in on the action, too. Here are some key deals since 2023:

1. Parthenon Capital Partners: In February 2023, Parthenon spent $415 million on Global Payments’ gaming solutions business.
2. Silver Lake: In April of this year, Silver Lake spent $13 billion taking Endeavor, an entertainment company with a major gambling platform, private. Silver Lake paid $27.50 per share, at a 55% premium from the firm’s October share price – not too far off from the 56% markup Apollo is paying for IGT-Everi. 
3. Standard General: Just four days ago, the hedge fund agreed to pay $18.25 per share, at a 71% premium, to take global casino operator Bally’s private, valuing the company at $4.6 billion.

Apollo declined to comment.

Buyout News 

Not to be confused with the Everi deal, Apollo also bought Evri last week, a British delivery company. Former owner, Advent International, is slated to get £2.7 billion ($3.47 billion) for the firm, which it bought for €1 billion (about $1.28 billion) in 2020 when it was the UK branch of Hermes delivery group, rebranding it as Evri in 2022.

KKR also had a busy week, buying ed-tech company Instructure for $4.8 billion. The buyout is a take-private for the NYSE-listed company that will see current majority shareholder Thoma Bravo and other stakeholders receive $23.60 per share, in cash – a 16% premium over its May 2024 share price. Thoma Bravo took Instructure public in 2021. 

KKR also made headlines in its deal to buy Janney Montgomery Scott, the wealth management subsidiary of Penn Mutual Life Insurance, for an undisclosed amount. Janney currently manages over $150 billion in assets. Once the transaction closes in Q4 of this year, Janney will operate as a private company. 

Permira, conversely, is looking to sell its wealth management asset, seeking a buyer for its £1.5 billion ($1.93 billion) stake majority stake (56%) in Evelyn Partners, a private British firm Permira acquired in 2014 managing over £60 million in assets. Permira is reportedly considering a sell-down of its stake, an outright sale of its entire stake, or even a spin-out of Evelyn’s accounting practice. 

The Abu Dhabi Investment Authority (ADIA) is considering a €1 billion (about $1.1 billion) investment in a continuation fund for PAI Partners’ Froneri ice cream business, a joint venture launched in 2016 between PAI-backed R&R and Nestle. The deal could value Froneri at over $10 billion.

Finally, Hamilton Lane has acquired a large stake in the New Jersey-based Cosette Pharmaceuticals for an undisclosed amount. The seller, Avista Capital Partners, will retain a portion of its stake and jointly manage the drug manufacturer with Hamilton Lane moving forward.