American Capital Gambles On Slots –

There will always be the cries from traditionalists. But while the one-arm bandits that embody the sport of gambling aren’t exactly dead, the levered, coin-filled machines of Benny Binion’s day are probably on their last legs. In their place has settled a newer, more efficient slot machine-lever-free and minus the flood of coins that come pouring out when the cherries align. To the dismay of some, the sound of victory at the slots is now characterized by the sputtered printing sound of a receipt.

Even as some old-timers may not like the change, the conversion to coinless slot machines, or the ticket-in / ticket-out models, has largely been greeted with cheers by casino operators and gamblers alike. The gamblers are freed from having to count their change or wait for the cashiers to come up with a tally, while the casinos can reduce staff around the slots.

“Two years ago all of the big domestic operators went through a phase where they started to convert into the ticket-in / ticket-out technology,” Aimee Marcel, a gaming analyst at Jefferies & Co., told Buyouts. “This conversion really benefits the operators. It helps limit the amount of employees needed for the slots and it limits the downtime of each machine.”

Less downtime means more gambling, which turns into more profits for the casinos. And because of that, the operators have not wasted any time in making the switch.

American Capital Strategies is one buyout shop that has been following this trend closely. Since December 2002, the firm has been an investor in FutureLogic, a maker of customized small-format embedded thermal printing solutions, or more plainly, a manufacturer of printers for the gaming markets. American Capital initially infused $27 million of debt into the company as part of a ClearLight Partners buyout a little more than two years. Then, this past February, American Capital bought out ClearLight’s stake and became the control stakeholder in the company with a $108 million acquisition.

American Capital’s 2002 investment in FutureLogic was timed perfectly for slot machine conversion. But the growth in that market could be slowing. According to Marcel, there’s about 70% saturation in the domestic ticket-in / ticket-out slot machine market, and those who have not converted by now, may not be inclined to do so.

While the conversion has only been two years in the making, there doesn’t appear to be that much more time left for investors looking to capitalize. International Game Technology, a bellweather in the gaming industry, tempered spirits in its year-end earnings release with a forecast for 2005 as a “transitional year.” And the company expects demand for cashless gaming machines to fall off from 2004 levels.

American Capital Principal Aseem Giri cited the recession resistant nature of the gaming industry in a press release touting the deal. And in a call to Buyouts, he noted that FutureLogic’s fate does not rest solely in the gaming space. “There are a lot of new applications for thermal printers. There’s the voting market, and within the medical space there are a whole host of applications where the technology can be used. The parking market is another area that uses thermal printing technology.”

And even as the domestic conversion from cash operated machines to ticket in / ticket out technology has largely been completed, some believe there’s growth in this area still to come. Marcel identified that some operators are looking to integrate promotional activities into the tickets and added that other countries, such as Australia, have yet to go through the conversion cycle.

So while some may miss the sound of change pouring into the coin bucket, the robotic printing sound has a pleasant ring to American Capital.