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Accel Entertainment: Risks Offset An Intriguing Story

Jun. 01, 2020 1:17 PM ETAccel Entertainment, Inc. (ACEL)5 Comments
Vince Martin profile picture
Vince Martin


  • Distributed gaming operator Accel can go a number of different ways depending on political movement in Illinois and the company's plans for expansion.
  • Fundamental analysis is difficult given significant uncertainty and a lack of comparables; ACEL looks like an 'eye of the beholder' stock.
  • But Accel has some levers to pull, and a growing, asset-light business should have upside in a normalized scenario.
  • After a bounce, valuation isn't perfect, and political risk seems elevated in the near- to mid-term.

Even heading into 2020, pinning down valuation for VGT (video gaming terminal) distributor Accel Entertainment (NYSE:ACEL) was a difficult task. Public comparables are essentially non-existent, as ACEL's model has important distinctions from those of slot machine manufacturers and traditional casinos. In a presentation last year ahead of its merger with SPAC (special purpose acquisition corporation) TPG Pace, Accel even called out "route-based service peers" which included Waste Management (WM) and Iron Mountain (IRM). The comparison wasn't necessarily outlandish, particularly by roadshow standards.

The expansion of gaming in Illinois promised to change the business — likely for the better, though the impact was difficult to gauge. A higher gaming tax rate was a negative, as was increased competition from new casinos, but seemed likely to be offset by an increase in the number of VGTs allowed per license and a doubling of the maximum bet. But the fiscal problems in the state — the only state in which Accel operates at the moment — are well-known, and added another potential wrinkle.

To top it off, the business hadn't been tested by any sort of recessionary environment: VGTs only launched in Illinois in 2012. Add in net leverage at year-end of ~2x EBITDA and ACEL promised a big dose of the "garbage in, garbage out" problem.

Five months later, the problem is even more pronounced. The coronavirus crisis has hit Illinois hard. The VGT business in the state remains closed, and likely is several weeks away from reopening. High unemployment could dent bar visitation and spend — or the industry could prove defensive or even benefit from lower consumer spending on travel.

A resulting budget crunch in Illinois, potentially as much as $3 billion in fiscal 2021, raises the possibility of further regulatory and/or political moves after last year's expansion. Similar problems in other

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Vince Martin profile picture
Overlooked Alpha launched April 2022 - subscribe at overlookedalpha.com. Some OA articles are also available here at Seeking Alpha.I've been contributing to Seeking Alpha and other investment websites since 2011, with a general (though far from rigid) focus on value over growth. I got my Series 7 and 63 back in 1999, and watched the dot-com bubble peak and then burst in real time at a small, tech-focused retail brokerage in NYC.

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Comments (5)

4407Rock Investors profile picture
Good article, what are your thoughts on the GA acquisition? I really liked the more favorable unit economics (45 operator / 45 establishment/ 10 to the state) in GA and bought Seven Aces earlier this year. With Trive taking them private however, this may be the only way for public investors to get GA exposure and I think further GA expansion may make sense for ACEL.
Vince Martin profile picture
To be honest, I'm not sure. It makes some sense, as you note. I'm not sure I'm ready to assign material value to the effort just yet. They're not nearly as connected in GA as they are in IL, the machines aren't as profitable, and there are entrenched operators there already. One analyst estimated they picked up about $2M in revenue:


I don't think it changes my opinion yet, though I'm open-minded about it. I'd be more excited I think if they made progress in MO than GA.
4407Rock Investors profile picture
Agreed with your point about the deal being immaterial at this point. GA is fragmented so maybe could be a good foothold for more acquisitions.

GA is actually more profitable from a unit economics basis (route operator keeps 45% of hold). 

I’m not sure if we have any indication of how MO unit economics will pan out, but if they could achieve some level of meaningful diversification across all 3 states that would be best case. Curious if that happens & how MO plays out. 

In my view it makes sense for Seven Aces + ACEL to merge (maybe after Trive exits) - that would instantly create a relatively diversified operator with 100m + EBITDA (assuming a return to pre-COVID numbers)
Please read this story about Accel Entertainment


Beginner’s Luck: How One Video Gambling Company Worked the Odds and Took Over a State
Funded in part by his wealthy family and aided by a personal connection at the Illinois Gaming Board, Andrew Rubenstein’s Accel Entertainment now owns a third of the state’s video gambling machines, making it the biggest video gambling operator in the nation.

by Jason GrottoMarch 3, 4 a.m. CST
Vince Martin profile picture
excellent link, thank you - I truthfully had missed it. I need to re-read it again but there's some troubling, and not terribly surprising, stuff in there.
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