On Monday, Aristocrat Leisure Limited (ASX: ALL) shares started the week with a small gain.
Investors were bidding the ASX 200 gaming technology stock higher after it announced a major acquisition.
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What is Aristocrat acquiring NeoGames?
According to the release, Aristocrat has agreed to acquire NeoGames in a deal valued at $1.8 billion on an enterprise value.
Management believes the acquisition delivers on Aristocrat's online real money gaming (RMG) strategy and expects it to accelerate its growth.
In addition, the deal is forecast to be earnings per share accretive in the first full year of ownership.
Positively, the acquisition is recommended by the NeoGames Board and shareholders representing ~61% of its outstanding shares have agreed to vote in favour of the transaction.
Outside this, another positive is that management has revealed that its on-market share buy-back program has been increased by up to $500 million.
Does this make Aristocrat shares a buy?
Goldman Sachs has been running the rule over the acquisition and likes what it sees. It said:
We had previously called out the iSlots market as the key opportunity that can be targeted by the Anaxi (RMG) business. This proposed acquisition expands this opportunity to be more global and inclusive of the entire RMG universe including iLottery and OSB.
It then adds:
Our first thoughts are that the acquisition offers an exciting growth option which expands the addressable opportunity for RMG. While the transaction is at a 16.5x 12m trailing EV/EBITDA multiple, on an EV/Revenue basis it is at c. 0.2x (based on mid-point of NeoGames CY23 revenue guidance of US$235-255mn) and the growth opportunity remains strong. Overall, the acquisition in itself does not come as a surprise as management has previously noted the key gaps they are likely to target through inorganic opportunities in the RMG space.
Goldman currently has a buy rating and $45.70 price target on the Aristocrat shares. This implies potential upside of almost 16% for investors.
