On Friday, casino operator Penn National Gaming announced an agreement to be taken private at a purchase price totaling $8.9 billion. Fool gaming analyst Jeff Hwang says that if Penn National is a private equity target, then so is everybody else.
I doubt I'm alone when I say that I've become a little desensitized to the happenings in the gaming industry. To tell you the truth, very little of what happens in the gaming industry these days truly shocks me.
Surprised? Sure. But shocked? Not really.
Back in 2004, when MGM Mirage
That said, I have to admit to being more than a little surprised when Penn National Gaming
But aside from the huge payday for Penn's shareholders, there's a bigger underlying message here: Everybody is game.
The reason I say that is because what Harrah's, Station, and MGM all have in common is a lock on the best available real estate in the most valuable gaming market in the United States. MGM controls 865 acres of land on the Las Vegas Strip, the most valuable being the land smack at Center Strip -- the land represented by Bellagio and Project CityCenter. Harrah's controls 350 acres of land on or around Center Strip (including Rio), and Station Casinos has the best casinos and locations at every corner of the Las Vegas locals gaming market, as well as a lock on some of the best available sites zoned for gaming left in the market. So the Las Vegas real estate represents an obvious attraction to these companies.
Penn National, incidentally, has none of that.
While Penn does have a nice racino development pipeline and two of the highest-grossing casinos in the industry outside of Las Vegas (Argosy Lawrenceburg near Cincinnati and Charles Town Races & Slots in West Virginia), the company is largely a second-tier casino operator. The only obvious attraction is that the company produced $629 million in EBITDA in 2006. But I think that's really the key: Private equity has a pile of cash that needs to be spent, and the tremendous, reliable cash flows of the casino operators make them attractive targets. Moreover, private equity is willing to pay up for it.
This begs another obvious question: If Penn National is suitable, then why stop there? My guess would have been that Boyd Gaming
Alternatively, if it's the mere pursuit of cash flow, then a top-tier riverboat casino operator such as Motley Fool Hidden Gems selection Ameristar Casinos
I would caution that the pipeline-rich players such as Las Vegas Sands and Pinnacle Entertainment are less likely targets. But the gist of it is that if Penn National is a private equity target, then so is everybody else in the game.
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