E+M Deal Talk - August

Playtech’s M&A woes, a look at PlayUp’s strategic review and some thoughts on share buybacks.

Aug 9

Welcome to the debut edition of E+M’s new monthly newsletter Deal Talk, discussing what’s being spoken about away from the earnings announcements and analyst calls of the betting and gaming sector.

Much of this, as you will see, is off the record. Necessarily so, because the best info often comes in non-attributable comments and for a very good reason. Much of the gossip is provisional, the ideas discussed are often just that - ideas. None of this is set in stone.

In terms of usefulness, we think this information has a place. It broadens the understanding of what’s going on in the sector and provides insight into what has been said by companies operating within the space.

We trust you find this issue a decent read and look out for further issues that will be in your inboxes every second Tuesday of every month.

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Playtech’s M&A woes

Playtech’s rolling maul of an M&A saga, begun back in October last year when Aristocrat first lodged a £2.7bn bid for the online gaming and betting supplier, appeared to reach a dead-end in mid-July when it was announced that the TTB investor group would not be lodging a formal offer for the company.

But is that really the end of the road? The TTB group included, of course, Mor Weizer, the current Playtech CEO, along with Tom Hall, a former CEO and current investor.

Hoops: Their joint statement when the talks ended stated that “challenging global economic and market conditions which were not present in February made it impossible to create the right structure for a new company”.
People close to the deal point out that between the start of this year and the summer, the cost of debt has risen significantly from around 3%-4% and closer to 9%-10%.

The big chill: The escalating price of debt points to a central point: credit markets have frozen.

Junk bond trader: According to Fitch, high-yield bond issuance in H1 fell by 68% to $61bn; further, they noted July issuance was “exceptionally weak” with just two deals worth a combined $1.1bn.
Ain’t happening: In the words of one banker, “no one can get financing right now”.

Collateral damage: Inevitably, the same debt backdrop also did for the hopes of the CaliPlay float deal involving Playtech, Caliente and the Tekkorp SPAC. At the end of July, Playtech said the original plan for a float had been abandoned due to capital market conditions which had “deteriorated significantly”.

SPAC up and go home: Sources point out the SPAC market is all but dead.

Not just a debt story

The Asian connection: Ancillary to the debt story for any Playtech suitor is the status of a group of Asia-based investors who, according to the shareholder register, control over 20% of the shares.

Meet the gang: Among the names are Karen Lo (4.9%), a soy milk heiress, Paul Suen Cho Hung (4.6%), the owner of Birmingham City, Stanley Choi Chiu Fai (2.99%), a controversial businessman and poker player and Tang Hao (298%), previously a shareholder in Stars Group.
Gopher it: Then there is Hong Kong-based Gopher Investments with 4.97% which recently completed the purchase of Playtech’s financial trading business Finalto.

Slippery people: The grouping is controversial, not least because it is so hard to pin down. According to the stock exchange rules, they are not acting as a concert party but it is known they were - collectively - the holdouts on the original Aristocrat bid.

It remains the subject of rumor whether there are any links between the shareholders and the ultimate owner of the Asian business.

You can go your own way: Whoever the owners are, it is thought they wouldn’t be keen on the Asian business being cast adrift by any sale from the Playtech tech.

“They would want continual supply,” says one source. “It’s a living breathing organism from a business perspective.”

Boxed in

Stuck: The Asian shareholders have the power to block any deal they don’t like (Aristocrat is thought unlikely to return to the table on this basis) but have yet to articulate what they do want.

A sale of Snaitech, for instance, would likely need their approval, and though it is unlikely they would block any deal, it adds uncertainty to an already fraught M&A backdrop.

As for Mor Weizer, his position at Playtech appears to be secure regardless. “As far as Playtech is concerned, he’s unique,” said one source.

Where do we go from here? “It’s like the old gag about not starting from here,” says one source. A deal would have to be attractive enough to entice the Asian investors to sell but that would necessarily mean taking on the Asian risk.

Finding that combination - right here, right now - might be beyond even the spreadsheet wizards of the investment banks.

The month in transactions

Scout Gaming’s board has confirmed it will hold an EGM to agree on a SEK55m emergency rights issue to keep the business afloat.
OpenBet has acquired proprietary sports technology and quantitative trading models provider Multi Builder Limited. The deal comes ahead of the completion of Endeavor’s acquisition of Openbet from Light & Wonder.
Affiliate Playmaker has acquired sports media publisher JuanFootball for $2.8m.
Another affiliate, OddsJam has announced it has acquired odds comparison platform OddsBoom for an undisclosed sum. As part of the acquisition, OddsBoom founder Mark Knight joins OddsJam’s executive team.
Optimove: The CRM business has acquired AI content personalization solution Graphyte for an undisclosed sum.

PlayUp’s strategic review

For a small company, PlayUp generates a lot of news. The latest surrounds the appointment of Innovation Capital to undertake a strategic review.

The future is far from written: If it is better overall to be talked about than not, PlayUp is doing well. The news that the Australian-based company is now seeking advice on what to do next comes after a run of stories, some good, some not so much, all of which suggest a company in flux.

To recap, PlayUp has been in court defending itself against accusations from former US CEO Laila Mintas.
The dispute centered around a takeover bid from crypto-currency exchange FTX whose interest in the business eventually resolved into a $35m stake in the business.

Key/unlock: As with any strategic review, the aim is to explore how to unlock shareholder value, as bankers and advisers tend to put it. Which in plain language means to find a buyer.

What’s on offer? PlayUp operates in Australia on its own tech platform. However, its US positioning is arguably what makes a sale attractive, and is the reason why a buyer has yet to be sourced.

PlayUp made the previous decision to run on its own platform having previously bought off the shelf from Amelco.
However, its proprietary platform is yet to receive certification from GLI. While PlayUp is understood to believe that is coming soon, the present uncertainty makes a sale difficult.
PlayUp also has a set of eight licenses, which could be useful to any buyer, but as one source suggested market access agreements “aren’t the barrier to entry that we thought they were going to be”.
“Inheriting a less than ideal market access agreement might not be all that attractive,” the source added.

Fantasy channels: Another plus point is the company’s DFS operation in Australia, DraftStars which is the number one in that market and comes with the potential of combining prize pools with a US audience.

Who will buy?

The most obvious buyer - but clearly not biting as it stands - is FTX. As was revealed via the Mintas court papers, it was on the verge of buying the entire business last year for $450m.

Dartboard: Sources point out that the overlap between the crypto community and that of sports betting is potentially huge. “It’s a bullseye for the sports-betting market,” said one.
A move wouldn’t be such a leap considering the already existing connections between the two worlds.

A crypto JP Morgan: Away from the sports-betting bubble, it should be noted that FTX rather has its hands full at present. In the midst of the recent crypto slump, not to say crisis, it became something of a buyer of last resort for all manner of crypto casualties.

Founder Sam Bankman-Fried has been compared - somewhat tongue in cheek - to Golden Age financier and sometime-savior of the US financial system JP Morgan.
Now voyager: In June alone, FTX stepped in to buy two companies, propped up BlockFi with an injection of cash and tried to save Voyager Digital with a large loan.

cars parked near the building during night time

Deeper dive - MGM’s share buybacks

Since the start of the year, MGM Resorts has repurchased $4bn worth of shares or 31% of its market cap.

Health and efficiency: The strength of MGM’s balance sheet is demonstrated by its share buyback program which has to date this year snapped up over 32m shares. On the call on Wednesday, CFO Jonathan Hlakyard said the “aggressive” repurchase program had been embarked upon because of the “value we see at current trading multiples”.

Carry on repurchasing: He noted that since the end of the quarter, MGM has repurchased another 5.3m shares at a price of $29. This compares with the current share price at $34.20.

Eye of the beholder: Halkyard offered what he said was a ”soliloquy” about the attractiveness of MGM’s share price value, he added that share buybacks were also a part of the asset-light strategy the company has been pursuing of returning capital to shareholders.

The end of the road: But he noted that with $4bn having been spent so far, “more of that strategy is behind us than is still in front of us”. He noted MGM has just under $1bn of share repurchase authorization left.
Halkyard said the company is also bearing in mind other capital requirements such as a potential casino development in New York.

More reviews

The pressure cooker: Another strategic review was announced last week when FuboTV said it was looking at its options when it came to its gaming division. The US TV streaming challenger announced on Friday it is “looking for a new partner” for the business.

Fundamentals: The company blamed a “fundamentally changed financing environment”, a comment which brings us back to the funding crunch discussed above.
Fubo said: “We are taking steps to de-risk our business and have made the decision to no longer go down the wagering path independently.”

Join the queue: Alongside the aforementioned PlayUp review, sources suggest BetFred and Tipico are also thought to be casting around for options whether that is a buyout, partnerships or other changes in direction.