Operator News

US – Caesars to look at future M&As as cash flow grows

By Phil - 3 August 2023

With excess cash flow expected from 2024 to 2025, Caesars Entertainment has hinted that it could be on the lookout for mergers and acquisitions.

Speaking as Caesars announced net revenues of $2.9bn for the second quarter ended June 30, 2023 versus $2.8bn for the comparable prior-year period, Tom Reeg, Chief Executive Officer of Caesars Entertainment, said: “From a balance-sheet and cash-flow perspective, you get to a point where you’re going to be generating a lot of free cash flow and look at what to do with it,” Reeg said. “We as a team have delivered a lot of value over the last decade to stakeholders through external opportunities. Of course, we’re going to look for potential future opportunities now that we’re in a position to tackle those, but don’t read that as a lack of confidence in the growth potential of the existing portfolio.”

He added: ““You know who’s out there. You know those that are at our size. It’s not as easy to find targets that, A, move the needle and B, are actionable from an antitrust perspective. But there’s not zero targets available out there. And as we get to those free-cash-flow levels, given what we’ve generated in the past in terms of returns, it shouldn’t be surprising to anybody that we’ll look for an opportunity to do that again.”

Deutsche Bank analyst Carlo Santarelli said: “[Caesars] management noted that it would soon be in a position to be more aggressive with respect to external opportunities. These comments, as expected, received a lot of attention from the investment community.”

“The landscape, both in Las Vegas and in regional markets, has and is likely to have assets coming for sale at more reasonable valuations in the medium term,” he added. “We believe management believes there is more value creation in M&A than in capital returns a la buybacks/dividends. We believe any acquisition would likely need to grow the business by, at minimum, 10 per cent on an EBITDAR basis, thereby ruling out smaller operators and assets from the discussion.”

Caesars generated GAAP net income of $920m compared to net loss of $123m for the comparable prior-year period, with the increase primarily driven by a release of $940m of valuation allowance against deferred tax assets associated with its REIT leases.

Same-store Adjusted EBITDA came in at $1bn versus $978m for the comparable prior-year period.

Mr Reeg added: “The second quarter of 2023 reflected continued strength in our business. Demand remains strong in both Las Vegas and our regional markets. Caesars Digital posted its first quarter of positive adjusted EBITDA since our rebranding to Caesars Sportsbook in the third quarter of 2021. Our capital investments are generating stronger than expected returns based on recent new property openings.”