Accel Entertainment has captured attention with its recent acquisition of Fairmount Holdings and a promising outlook for further growth. Analysts are optimistic about the company’s strategic moves, strong financials, and focus on diversifying beyond Illinois. Here’s a closer look at what has Wall Street buzzing.
The Fairmount Acquisition: A Strategic Move
In December, Accel completed a $35 million deal to acquire Fairmount Holdings, including the FanDuel Sportsbook & Horseracing facility in Illinois. The purchase, structured with 3.45 million shares of Accel’s A-1 common stock, brought significant assets:
- A master sports-betting license.
- Partnership with FanDuel for retail and online sports betting.
- Racetrack operations and three active off-track betting sites.
- The opportunity to develop a casino.
Deutsche Bank analyst Carlo Santarelli noted that the acquisition offers more than just geographic expansion in Illinois. It provides Accel with a new growth stream aligned with its distributed route gaming operations. Santarelli projects the temporary facility will open in mid-2025, with a permanent one following in late 2027.
Financial Outlook: Balancing Growth and Stability
Accel’s financial health is a strong selling point. The company ended the third quarter with a net debt-to-EBITDA ratio of 1.6, signaling a robust balance sheet. Santarelli highlights this as a key advantage as Accel looks to allocate capital effectively in 2025.
- Fairmount Park Racino Expectations: Accel aims to generate adjusted EBITDA of $20–$25 million from the Fairmount project within five years.
- Share Repurchases: In 2023, Accel bought back $30 million worth of shares and $22 million more through Q3 2024. Analysts expect this trend to continue.
This financial flexibility supports Accel’s ongoing mergers and acquisitions, a strategy it has actively pursued to diversify its revenue streams.
Mergers, Acquisitions, and Expansion Opportunities
Accel’s management has emphasized its commitment to exploring diverse opportunities across geographies and asset classes. Analysts see this as a cornerstone of the company’s growth strategy. Potential areas of focus include:
- Entering new states to reduce reliance on Illinois.
- Expanding into complementary sectors like sports betting and casino operations.
- Acquiring smaller operators to strengthen its portfolio.
Santarelli remains confident that Accel’s acquisition pipeline will remain active, creating opportunities for both short-term revenue boosts and long-term growth.
Legislative Challenges and Revenue Implications
The legislative landscape in Illinois poses both opportunities and challenges for Accel. A 1% tax increase on distributed gaming revenue was implemented recently, with Accel absorbing half the cost. This represents a $4 million annual headwind, contributing to a slight decline in gross margins.
Accel is countering these challenges with strategic measures:
- Tightening cost controls.
- Cutting ties with underperforming Illinois locations.
- Exploring the potential legalization of Ticket-In-Ticket-Out (TITO) systems, which could boost efficiency and revenue.
Additionally, Illinois is considering the legalization of iGaming, a development that could introduce competition for Accel’s Video Gaming Terminals (VGTs).
The Bigger Picture: What Lies Ahead
As Accel enters 2025, analysts and investors are closely watching the company’s performance on several fronts:
- The rollout of the temporary and permanent Fairmount casino facilities.
- The impact of cost-control measures and potential tax changes in Illinois.
- Success in expanding to new markets through M&A activity.
Santarelli emphasizes that the combination of strategic acquisitions, solid financial management, and innovative adaptations to legislative changes positions Accel as a company with significant growth potential.
