Leading distributed gaming operator Accel Entertainment, Inc. (NYSE: NYSE:ACEL), has recently announced that it will acquire Fairmount Holdings, Inc. This acquisition includes Fairmount Park, Inc., the sole active horse racing venue in the greater St. Louis area. This acquisition is indeed a significant move that could reshape the U.S. gaming sector.

The transaction, estimated at around $35 million, will be settled through 3.45 million shares of Accel’s Class A-1 common stock. This strategic move allows Accel to broaden its local gaming presence by integrating the Fairmount property into its portfolio. The property currently hosts approximately 435 horse races over 65 race days annually.

Included in the deal is an Organization Gaming Licence, which permits casino gaming positions, and a partnership with FanDuel for sports wagering in Illinois. Accel is set to invest an additional $85 to $95 million beyond the purchase price for the development of casino facilities and enhancements to the horse racing experience. The company has enlisted RRC Gaming Management LLC for the development and operations of the casino, leveraging the expertise of industry veterans like Tony Rodio and Holly Gagnon.

The transaction is lined up to close in the fourth quarter of 2024, pending customary approvals from the Illinois Racing Board and the Illinois Gaming Board. Accel projects that the investment will generate an Adjusted EBITDA potential of $20 to $25 million with over 75 percent free cash flow conversion, indicating a strong return on capital.

Overview of transaction

Accel’s co-founder and CEO, Andy Rubenstein, (pictured above on the left with co-founder Gordon Rubenstein after going public under the ticker ACEL in 2019) expressed his excitement for the venture, underscoring the company’s dedication to preserving the rich history of Fairmount Park and supporting the Illinois horse racing industry. The acquisition, which marks nearly a century of Fairmount Park’s operations, aims to boost job creation and economic development in southern Illinois and the greater St. Louis community.

The sellers, William Stiritz and Robert Vitale, commended the agreement, expressing confidence in Accel’s capabilities to maximize the full potential of the sportsbook and racetrack. Mayor Jeff Stehman of Collinsville, IL, also welcomed the acquisition, anticipating positive economic impacts for the local community.

In other recent news, Accel Entertainment reported steady growth in the first quarter of 2024. The company’s Q1 2024 revenue rose to $302 million, marking a 2.9 percent increase year-over-year (YoY), and adjusted EBITDA saw a marginal increase of 0.3 percent YoY, reaching $46 million. Despite facing challenges such as unfavourable weather conditions that negatively impacted same-store sales growth, Accel’s expansion into Illinois and Nebraska and a robust growth pipeline have contributed to these positive results.

Accel Entertainment also announced a $200 million share repurchase program, which is backed by a strong balance sheet with $286 million in net debt and $553 million in liquidity. The company is actively exploring multiple opportunities for expansion across the country, with expectations to enter multiple markets by the end of the year.

Investment insights

In light of Accel Entertainment’s (NYSE: ACEL) recent move to acquire Fairmount Holdings, Inc., investors may find it beneficial to consider some key financial metrics and insights from InvestingPro. With a market capitalization of $875.15 million, Accel’s strategic investment in expanding its gaming footprint shows a commitment to growth in the gaming and entertainment sector. The company’s P/E ratio, which stands at 20.35, reflects investor sentiment about its earnings potential, particularly as it embarks on this new venture.

Accel’s robust financial position is reflected by a Price / Book multiple of 4.34, indicating that the market values the company’s assets favourably compared to its book value. This is particularly relevant as the company takes on a significant investment in developing casino facilities and improving the horse racing experience. Additionally, with a gross profit margin of 30.23 percent over the last twelve months as of Q1 2024, Accel appears to be effectively managing its costs, which could bode well for the profitability of the newly acquired operations.

While analysts have revised their earnings expectations downwards for the upcoming period, they predict the company will be profitable this year. Furthermore, Accel’s liquid assets exceed its short-term obligations, which may provide financial flexibility for the investments and developments planned. It’s noteworthy that Accel does not pay a dividend to shareholders, which could mean that the company is reinvesting its earnings back into growth initiatives like the Fairmount acquisition.

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