Scientific Games Lottery IPO in Australia Inching Closer to Reality

Scientific Games (NASDAQ:SGMS) is reportedly moving closer to listing its lottery business in Australia in an initial public offering (IPO). That could be worth as much as $5 billion.

SG Lottery provides the systems used to generate Mega Millions and Powerball tickets.

A pair of unidentified sources tell Reuters the Las Vegas-based slot machine manufacturer is pitching local fund managers on the Sydney listing, hoping to value the lottery unit at north of $10 billion. At $5 billion, the SG Lottery listing would be Australia s biggest IPO since the 2014 debut of health insurer Medibank Private at a $4.9 billion valuation.

In early July, Scientific Games said it’s parting with the lottery unit and its Don Best sports wagering arm. It noted at the time the transactions could materialize in the form of an initial public offering (IPO), a merger with a (SPAC), or an outright sale or combination with another firm.

Within days of that announcement, that the company was holding talks with Australian investment banks regarding a Sydney listing for the SG Lottery unit.

While SG Lottery has more than 130 customers in over 50 countries, North America and Europe combined for 97 percent of the unit s fiscal 2020 revenue.

Still, Australia makes for a sensible listing venue for the business, should Scientific Games opt to go that route. Because of the local presence of companies such as Aristocrat Leisure and Tabcorp, Australian investors are already highly familiar with a business like SG Lottery. As a result, the parent company may be able to fetch a higher valuation for the unit in Sydney than it would in New York.

An Australia IPO by SG Lottery could also be a template for Tabcorp, which earlier this year its keno and lottery operations into a new public company. An estimated valuation hasn’t yet been assigned to the Tabcorp unit.

Scientific Games mulling the Sydney listing of SG Lottery could also be a sign it s not satisfied with offers for the business it may be receiving from rumored suitors. Private equity firms Apollo Global Management (NYSE:APO), Carlyle Group, and TPG Capital are for SG Lottery. But no offers have been made public as of yet.

Fund managers and would-be suitors alike could find SG Lottery compelling from a fundamental perspective. That s because the business is profitable, growing, and proved resilient during the coronavirus pandemic.

In at the business released earlier this week, Scientific Games said the lottery segment will sport a compound annual growth rate (CAGR) of 13.6 percent through 2022.

In addition to controlling more than two-thirds of the global instant lottery (scratchers) market, SG Lottery also has 13 percent share in the still-nascent though fast-growing internet lottery arena, according to the parent company.