Accel Entertainment (NYSE: ACEL), which owns video gaming terminals (VGTs), is buying Fairmont Holdings for $35 million, adding a racetrack to its portfolio of assets.
Accel is a major gambling operator in the United States. Fairmont had sales of $29 million last year and profits were modest.
Accel is a provider of video gaming terminals in Illinois and several other states. Accel gaming terminals are installed in establishments such as restaurants, bars, convenience stores, truck stops and convenience stores.
FanDuel Sportsbook & Horse Racing’s privately held Fairmont racetrack is located in Collinsville, Illinois. The racetrack hosts 65 races per day and 435 races per year. The racetrack is nearly 100 years old and was renamed FanDuel Sportsbook & Horse Racing in 2020.
Accel plans to invest $85-95 million (above the purchase price) to fund temporary and then permanent construction of a casino and a modest investment in the track. Accel’s five-year forecast is for EBITDA to be in the range of $20-25 million and a free cash flow conversion of more than 75 percent, indicating a return on equity,” the two companies said in a statement.
The Fairmont purchase fits Accel’s profile
In the case of Fairmont, Accel accomplishes the goal of expanding its capabilities and routes by spreading its wings in the broader gaming industry.
FanDuel Sportsbook & Horse Racing is the only horse racing facility in the St. Louis area – which is another advantage.
After the acquisition, the plan is to build a temporary casino at the site next year and a permanent casino in 2027. The gambling facility will have 500 machines, 24 tables and a sportsbook and Accel will make a significant contribution to the project.
Accel predicts an “attractive return on equity” as a result of the deal.
Future growth after the deal could be as high as the runway
Overall, Illinois is the largest gaming market in the US, but there is fragmentation in Southern Illinois and St. Louis, and many operators are independents, indicating there is room for consolidation.
“This transaction opens access to a ‘local gaming’ market estimated to be approximately $15 billion, more than double the size of the existing TAM,” the company said in a statement.
“Local gaming assets remain largely unconsolidated, family or small business owned, and are much less likely to be challenged by the big players.”
That could be beneficial to Accel. The company also did not mention whether the casino would carry FanDuel – one of the most valuable in the gaming industry – but attached to another casino in Illinois.
The deal has two parts – the acquisition of Fairmount, the license holder and owner of the underlying assets, for $35 million in equity, and an $85 million to $95 million expected investment in the casino and track, financed through Accel’s line of credit.