Good morning and welcome to edition #6 of Deal Talk. This month we are discussing:

• A look at the potential sale of PointsBet’s Australian business and what that says about its US prospects.

• IG Acquisition Corp. SPAC pulls out of merger with PlayUp.

• E+M estimates ~$10bn of sector-related M&A deals were completed in 2022.

• The return (to an extent) of gaming affiliate M&A including this morning’s news of the potential sale of the entirety of Catena Media.

My love and I, we work well together but often we're apart.

All Points south

The news that PointsBet is in talks about the sale of its Australian sports-betting business has implications for its US ambitions.

He’s been: Just after Christmas, PointsBet confirmed to the Australian stock exchange the pre-festivities story in The Australian that it had received a A$250m approach for its Australian-facing business from NTD, which operates the Betr brand. A subsequent ASX communication said talks were initiated in mid-November.

• This is the second approach for PointsBet from NTD; the previous offer came in June last year when the rumored price was ~A$220m.

Who’s NTD? Not to be confused with the recently launched US-facing micro-betting operator betr, the company behind betr.com.au is jointly owned by BetMakers Technology, Tekkorp, News Corp and former BetEasy chief executive Matthew Tripp. 

• The CEO is Andrew Menz, who was previously at BetEasy and subsequently was CCO at Australian market leader Sportsbet.

• BetMakers supplies the tech backend.

• Tripp has form: He previously sold Sportsbet to (then) Paddy Power Betfair in 2011 and also BetEasy to (then) Stars Group in 2019.

Chance your arm: As sources suggested, this is an opportunistic bid. In the past year, PointsBet’s shares are down over 72% and following the temporary boost of the June bid they have fallen 63% since the mid-year point.

🎢 PointsBet’s share price slide in 2022

As PointsBet noted in its ASX statement, “any potential transaction will be assessed in the context of PointsBet’s global strategy and opportunities”.

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What’s it worth?

The figures: The Australian business generated gross win of A$338.4m (US$232.9m at current FX rates) from total gross win of A$497.8m or 68% of the total. Net win was A$215.4m or 70% of the total of A$309.4m. 

• Australian marketing expenses (including the costs of its flagship campaign with Shaq O’Neal) were A$61.5m and EBITDA was a mere A$7.7m.

• The marketing spend declined over the course of the year, down to A$16.8m in H2 vs. A$44.7m in H1.

• PointsBet is a challenger brand itself in Australia; recent download share analysis by the team at Taylor Collison suggested the trend for the last 18 months is between 4-8% share of the download market.

• In comparison, market leader Sportsbet’s trend for the past 18 months is between 35-45%, with Entain (NED and Ladbrokes) at 15-20% and TAB on 16-24% share.

Synergies: The rumored price of A$250m appears expensive and would equate to a EBITDA multiple of ~32x. But sources suggested the cost synergies would be significant, with Betr able to eliminate duplicate tech and trading teams and move to a single brand.

Bleeding money: The problem with PointsBet is the cost of its US operations. Doing a similar exercise as E+M did with DraftKings in a recent Due Diligence edition, it can be seen that the North American losses of A$213.1m helped tip PointsBet into a loss from operations of A$250m.

• Though the quantum is different between PointsBet and DraftKings, similar issues are evident.

• Notably, sales & marketing expense for the group is at 80% of revenue (vs. 60% for DraftKings); this is despite the declining Australian marketing spend in the second half.

• The cost of sales problem is similar for the two; 59% of revenue at PointsBet (vs. DraftKings’ 67%) and growing at a rate of 64%.

• PointsBet also includes A$92.2m of employee benefits, which it said are necessary as it “continues to build a world class team”. This accounted for 31% of total revenue.

Runway: As with others in the US market, the question turns to whether PointsBet has the liquidity to reach profitability. Set against its operating losses is a cash position minus player balances of A$427.2m. Most recently, in June PointsBet raised $94.2m after SIG Sports Investments Corp., an offshoot of financial group Susquehanna International, bought a 12.8% stake.

• PointsBet’s previous fundraise in August 2021 was more problematic.

• Initially it announced a A$400m capital raise but, while institutions took up $215.1m, the retail offer only generated A$64.2m.

• Another key equity stakeholder is NBC, which owns 4.9% of PointsBet as part of a deal from 2020. 

• That was in return for PointsBet becoming the exclusive NBC sports-betting partner and a guaranteed spend of ~$400m.

The tracks of my tiers: According to one advisor, PointsBet’s separate Australia and US operations are ripe for being part of consolidation plays in their respective markets. But not together.

• According to this analysis, a sale of the Australian business would free up the potential of the US business to be incorporated along with at least one other tier 2 operator. 

• “I don’t think PointsBet has the scale to go it alone,” one corporate adviser added.

PlayUp SPAC off

The IG Acquisition Corp. SPAC calls off its merger with PlayUp.

Inevitable: As was predicted in the last edition of Deal Talk, the always improbable merger of the IGAC SPAC and largely Australian-facing PlayUp has been called off after the SPAC informed the SEC that it has served a termination notice. IGAC will now be dissolved, with outstanding shares being redeemed.

• The deal announced in September would have valued PlayUp at $350m.

• At the start of last year, a legal kerfuffle broke out with the company’s ex-US CEO over the fallout from a failed bid from then-solvent FTX.

M&A in 2022

Over $9.8bn of M&A transactions were tracked in the past 12 months.

The big ten-0: According to the transactions tracked across the course of 2022, at least $9.8bn of sector-specific deals were completed in 2022. Taking account of the deals where the amounts were not disclosed, E+M estimates that ~$10bn of M&A was completed over the course of the year.

• The top deal came early in the year with the $2.75bn paid by Churchill Downs for the largely historical horse-racing machine assets of Peninsular Pacific.

• Next up was Entain’s deal for Croatian operator SuperSport for €920m, which was completed as part of its Entain CEE plans with EMMA Capital.

• The third-biggest deal was Entain’s second big one of the year, the €850m paid for BetCity in the Netherlands, ahead of the $800m in cash and shares paid for OpenBet by Endeavor.

🎯 The top 10 M&A transactions in 2022

• Bubbling under: Just outside the top 10 was Churchill Downs again, with its $250m deal for Exacta announced right at the end of the year, ahead of IGT’s £160m purchase of iSoftBet from April and Boyd Gaming’s $170m acquisition of Pala Interactive.

Signs of stress: It is possible to discern a drop off in activity in the latter half of 2022. Included in the top 10, for instance, is Endeavor’s completion of its deal for OpenBet, originally announced in September 2021.

• The economic backdrop was cited as one of the reasons behind the cut in the price tag to $800m when the deal was completed in June this year.

• By E+M’s estimates, ~$6.2bn of deals were completed in H1 and ~$3.4bn in H2. Of the top 10, only two deals came in H2. 

• In its January update, the gaming coverage team at Citizens said there has been an “explicable decline in capital raising” in the second half.

• “Venture capital, which had served as the lifeblood for much of the domestic online gaming industry, saw a swift and significant pull back in capital deployment amid a rapidly changing interest rate environment,” they added.

Further reading: Global deal-making suffered a record fall during the second half of this year as rising interest rates and economic uncertainty saw M&A activity freeze. And there was no surge in Q4.

The month in transactions

• VICI has completed the acquisition of the remaining 49.9% of the MGM Grand and Mandalay Bay from Blackstone for $1.27bn. The company has also announced a sale-and-leaseback of four casinos from Pure Canadian for $200.8m. This is VICI’s first ex-US investment.

• Analysts expressed some surprise at Churchill Downs’ vertical integration acquisition of historical horse-racing tech specialist Exacta for $250m.

• Greentube snapped up a 40% stake in games developer Flamingocatz for an undisclosed sum.

Affiliate M&A – slight return

GiG’s €45m deal for AskGamblers is the big news from the gaming affiliate space.

Question time: Better Collective remains the daddy of gaming-related affiliate M&A, with its €105m deal for the esports-focused Futbin in April being the biggest deal for the sub-sector in 2022. But arguably of more significance for the sector is GiG’s deal to buy AskGamblers and other European-facing assets from rival Catena Media.

• The €45m sale all but acknowledges that Catena’s focus is now 100% on its North American business.

• But sources pointed out it also opens up the opportunity for GiG to point AskGamblers in the direction of the US, something which Catena for whatever reason conspicuously failed to do.

👀 BREAKING: Notably, just this morning Catena Media announced it had appointed Carnegie Bank to advise on a potential sale of the company’s remaining assets.

• The statement said third parties have “shown interest in acquiring other assets as part of this process and the group continues to evaluate the divestment of such”.

• “During these discussions, third parties have also shown interest in acquiring all the remaining assets of the group in a strategic transaction or through a public tender offer for the group.”

In other recent gaming affiliate M&A news, US-facing affiliate Betsperts acquired Bleacher Nation for an undisclosed sum in a cash-plus-equity deal in late December. This follows on from Playmaker’s $31m purchase of Wedge, Seven Star’s deal for Moneta and Acroud’s deal for further Catena assets, which all occurred in October.

On social

Bet365 in Pennsylvania…

Chris Lynch @ChrisLynchNJ

There will surely be a lot of people reading into this but it's just a market access agreement. Been a while since these were press release-worthy announcements ir.churchilldownsincorporated.com/news-releases/…

9:24 PM ∙ Jan 9, 2023

Contact

• Scott Longley scott@clearconcisemedia.com

• Jake Pollard jake@openmediaservices.com