Acquisition has potential to double profits of GameTech

GameTech International has the potential to boost its revenues by half and perhaps double its net income after its acquisition of a Montana company that makes video lottery systems.

Reno-based GameTech, which makes electronic systems for bingo operators, said privately held Summit Amusement & Distributing Ltd. earned about $4 million on revenues of about $25 million in 2005.

By comparison, GameTech has posted revenues of $37.3 million in the first nine months of its fiscal year, a reporting period that ended July 31. Its earnings for the nine months totaled $3.3 million.

GameTech will pay $37 million roughly one and half times revenue for Summit Amusement, plus a bonus payment of as much as $2 million in the newly acquired company hits profit targets this year.

Publicly held GameTech will pay for the company with a $30 million term loan and a $10 million line of credit. The deal is scheduled to close in early 2007, and GameTech would owe Summit $1 million if the deal falls through.

Summit has about 50 employees. Its primary markets include Montana, Louisiana, South Dakota and West Virginia. It also works at Native American casinos through the United States.

Jay Meilstrup, the president and chief executive officer of GameTech, said his company believes that Summit's product line and sales force complement GameTech's offerings. And he said GameTech's management team believes it can grow the core business of Summit as well.

For its most recent quarter, GameTech reported earnings of $1.3 million on revenues of $12 million. A year earlier, it earned $85,000 on nearly identical revenues.

Meilstrup said the company is tightening its operating expenses. Administrative costs, for instance, were cut nearly in half in the past 12 months. Research and development expenses totaled $550,000 in the most recent quarter compared with $888,000 a year earlier.

But some of those gains, Meilstrup said, are offset by tight pricing.