Bally Technologies Has Eyes on Online Gaming With SHFL Purchase

Consolidation among gaming suppliers is continuing, and now it's with an eye on the future of online gaming. Earlier this year, Scientific Games said it would buy WMS Industries for $1.5 billion, creating a company with lottery equipment and slot machines. Today, Bally Technologies (NYSE: BYI  ) agreed  to buy SHFL entertainment (NASDAQ: SHFL  ) for $1.3 billion, or $23.25 per share, creating a casino supplier that can offer nearly all products or services needed to run a casino. 

They pointed to the typical synergies and complimentary products in the announcement, but when you think about the future of gaming, this is about online gaming. Both companies are approved to build online games in Nevada and, as online gaming spreads state by state around the country, they will be able to leverage their capabilities to expand that business.

As it stands now, the gaming supplier market for online gaming is going to play a key role. Companies like Bally, SHFL, or International Game Technology won't offer betting directly to customers, they'll supply technology to casinos, who will own licenses. This is similar to a casino but, since the game itself is the draw, the game itself is key.

In that respect, scale and a wide range of offerings will be important to suppliers. Bally's iGaming Platform is already offering online slot games in the U.K., and online poker will likely be key domestically. After SHFL entertainment dropped its Ongame purchase last year, it appeared that the company would have to develop its own technology, making scale important. This acquisition allows Bally and SHFL to build a complete platform of games at a cost that will be shared among a larger organization.

There's no doubt that Bally's paid a heavy price for SHFL entertainment at 16 time EBITDA, but it sees an opportunity to be a go-to supplier for both land-based casinos and online gaming. Now the company is set up to win no matter where the industry is headed.

If you're cashing in on the SHFL entertainment acquisition, The Motley Fool's chief investment officer has selected his No. 1 stock for this year, and it's not too late to get in on the stock, which is up 39% already this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report, and find out the name of this under-the-radar company.


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