Nevada Gaming Companies Remain Attractive Private-Equity Investments

December 8, 2023
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The acquisition of Nevada’s largest slot-route operator should be finalized by the end of the year, as regulators continue to welcome private-equity investments in the state’s gaming industry. as J&J Ventures Gaming is set to create a business of considerable size with its acquisition of Golden Entertainment’s distributed gaming routes.
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The acquisition of Nevada’s largest slot-route operator should be finalized by the end of the year, as regulators continue to welcome private-equity investments in the state’s gaming industry.

In March, Golden Entertainment announced the sale of its slot-route business in Nevada and Montana to J&J Ventures, the Illinois-based distributed gaming operator owned by an investment fund managed by private equity group Oaktree Capital Management.

Oaktree has a recent track record of acquisitions of gaming companies either based in Nevada or with a sizable presence in the state.

The firm’s Special Situations Group also owns gaming supplier Interblock, which it acquired in June 2022.

In July, Interblock purchased the electronic table game assets of Aruze Gaming America through a bankruptcy process.

In 2005, Oaktree purchased a 33 percent ownership interest in Cannery Casino Resorts in southern Nevada, which it eventually sold to Boyd Gaming in 2016 for $230m.

The private equity firm last month received final regulatory approval for its purchase of two Mesquite casinos for an undisclosed price. Mesquite is located some 82 miles north of Las Vegas.

Prior to the adoption on Regulation 15C in March 2016, private equity deals were approved in Nevada under a state gaming law defining publicly traded corporations. Gaming regulators were able to use the statute in 1999 to adopt the first Voteco structure in Nevada approving Colony Capital’s $428m acquisition of Harvey’s Casino Resorts.

But Regulation 15C, adopted in 2016, provided clarity to the state’s licensing structure, which encouraged private-equity funds and large financial institutions to invest in Nevada.

“The regulation has been a benefit to companies wishing to make investments in the gaming space without many of the regulatory hurdles that they would encounter otherwise,” said A.G. Burnett, partner with McDonald Carano law firm in Reno who served as chairman of the Nevada Gaming Control Board (NGCB) from 2012 to 2017.

“The NGCB has the ability to ensure strict oversight and control while allowing for these investments.”

Other notable private-equity approvals of recent times include Apollo Global Management's acquisition last year of the operations of the Venetian Resort from Las Vegas Sands for $2.25bn, and Z Capital Partners' merger with Affinity Gaming in 2021.

“I’m not sure what the amount of investments is since we adopted the regulation, but I do think it’s proven beneficial to the industry and the state,” Burnett said.

The three-member control board on Wednesday (December 6) recommended approval of the licensing of J&J Ventures and several Oaktree officers. If approved by the Nevada Gaming Commission on December 21, Oaktree’s J&J Ventures would operate 25,000 slot machines at 3,500 locations in five states.

Matthew Wilson, managing director and co-portfolio manager of the Special Situations Group at Los Angeles-based Oaktree Capital Management, said the firm initially invested in Illinois-based J&J Ventures in 2019 and has made 13 other acquisitions since then.

Under terms of the deal, J&J Ventures paid $213.5m, plus $34m of purchased cash, to acquire the Nevada distributed gaming business of Golden Entertainment. The purchased cash is the amount inside the machines on the route.

In September, J&J Ventures closed its acquisition of Golden’s distributed gaming business in Montana for $109m, plus $5m in purchased cash. The company also has a five-year contract to support the gaming operations of Golden’s Nevada tavern business.

Wilson said under Oaktree's ownership, J&J Ventures has grown revenue by 3.5 times; with the acquisition of Golden’s distributed gaming business, it will be fivefold. He said Oaktree’s initial investment in J&J Ventures was about $155m, and with the Golden deal it will be almost $300m in equity.

“We’ve taken nothing out,” Wilson said. “This goes to the point I made in one of our earlier hearings last month where I discussed our strategy to hold assets for multiple years. We are not looking to flip things.”

Currently, Oaktree has $16bn in assets under management within its Corporate Private Equity and Special Situations divisions. In total, Oaktree has $183bn in assets under management with 65 percent in the Americas, 18 percent in Europe, Middle East and Africa, and 17 percent in Asia-Pacific.

Privately-held J&J Ventures also operates distributed gaming in Illinois, Nebraska and Pennsylvania. The company on its website has pages dedicated to supporting the legalization of distributed gaming in North Carolina, Missouri and Indiana.

Wilson said J&J Ventures is probably a five- to seven-year hold in order for Oaktree to maximize the value it is looking to create through its investment.

“If you think about what this acquisition means for us, our strategy has been to go in an consolidate markets,” Wilson said. “We have the biggest player in Illinois right now. This [Golden Entertainment] gives us the biggest player in Nevada, a very strategic market for us.”

Wilson made it clear to Nevada gaming regulators that part of the J&J Ventures strategy is to diversify risk in both states where it operates and in new markets.

“We will get a higher premium valuation on the back-end of this by having a diversified portfolio of market-leading businesses across multiple states when we eventually exit this through the public markets or sale,” he added. 

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