Good morning. In this month’s edition of Deal Talk:

• Entain divulges some – but not all – of the information about its bolt-on successes and failures.

• BetMGM’s Greenblatt gives credit where it is due for Entain’s Angstrom deal.

• Inside the deal: Nieboer from Tekkorp gives the backdrop to the sale of Thunderbite to Xtremepush.

• Playtech calms fears over the future of NorthStar Gaming in Ontario.

What I got to give will do you good.

Entain’s bolt-ons 

A chart provided in its H1 earnings presentation gives some insight into how the company hopes its M&A strategy will play out.

This one goes to 11: As part of its H123 slide deck, Entain revealed details of eleven deals it has completed in the past five years, which it said would add more than $4bn of value after three full years of ownership. Included in the small print of the chart were the transactions in question, but without the identifying return figures.

• The chart elicited a question from an analyst on the call, noting that among the examples given there were a “few where the value was small or even negative” while the rest were positive.

• In fact, two were in negative territory, one was barely in positive territory and another was at ~£70m. 

• Precise figures weren’t given, but the chart did add that the four lowest performers offset each other.

💰 Return on investment: Entain’s incremental M&A value

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Wheat and chaff

I got a name for the winners in the world: A note on the slide said the incremental value was calculated using actual results or the most recent internal forecasts (for deals that are not three full years on from acquisition).

• The calculation was based on a multiple of 10x EBITDA minus the transaction size.

• As one source explained, it means that some of value creation comes from multiple expansion where they have acquired companies for less than 10x EBITDA.

• “But this also works the other way when they have acquired companies for more than  10x,” the source added.

• One example of this would be STS, which was bought over the summer on a multiple of 13x EBITDA. But this was not included in the eleven – and notably has been the subject of shareholder disquiet over the price paid.

I want a name when I lose: So which are the losers? CEO Jette Nygaard-Andersen gave some hints on the call. She suggested that regulatory disruption was often a determining factor, adding that “very often it’s regulation coming later than we assumed”.

• But operational issues are also a factor such as whether the business has a “very strong” management team in place and whether the acquisition came with its own technology platform, meaning Entain “doesn’t need to migrate them as soon as we would otherwise have done”.

Naming names: Bearing these comments in mind – and having sense-checked with sources – E+M suggests the most obvious candidates for the poor performers are, in no particular order, Unikrn, Bet.pt, Impala, Sports Interaction/Avid Gaming, Neds and Crystalbet. 

• It is likely these half a dozen sit on the right-hand side of the table.

• Bet.pt in Portugal was bought for an undisclosed sum and has since been rebranded as Bwin.

• Unikrn was bought in August 2021 for £50m but it had zero income at the time and it didn’t resurface as a working proposition until Dec22 as an esports-led sportsbook targeted at Brazil and Canada.

• Entain acquired 50% of African-facing B2B provider Impala in Mar21, Crystalbet was acquired in Mar18 for €41.3m and Neds was added to the Australian business for A$68m in Nov18.

• Another problematic deal – at least according to sources – is Sports Interaction/Avid Gaming in Canada, bought for C$300m in Feb22. 

On the other side of the ledger, all but guaranteed to be sitting on the left-hand side of the table are the following: 

• Enlabs/Klondaika, bought in Mar21 at ~£250m, Supersport, in which Entain bought a 75% stake in Nov22, using the deal as the launchpad for its Entain CEE JV with EMMA Capital and the Netherlands-facing operator BetCity, bought in January 2023 for an initial consideration of €300m.

• Lastly, the most recent deals: 365Scores, bought in June 2023 for $150m and TAB NZ, a 25-year partnership with the New Zealand government for which Entain has paid an initial consideration of NZ$160m with a further NZ$100 million payable subject to legislative actions.

The future is not yet written: It is important to note that with the majority of these deals, the three-year incremental value add is an estimate. Entain’s shareholders cannot be sure of there returns being promised by the deals at the left of the chart – and neither in truth can Entain.

• Despite investor concern over how much Entain was paying for STS, the lengths the company is going to present its bolt-on case suggests it will continue down the path, as long as the price is right.

BetMGM ♥️ Angstrom

BetMGM’s CEO says Entain has gone above and beyond in buying Angstrom.

You shouldn’t have: Speaking during the Bank of America investor event held last week, BetMGM CEO Adam Greenblatt said Entain’s rollout of the new capability brought by recent acquisition Angstrom was “targeted at BetMGM for the next 12-18 months”.

• Recall, Entain bought the UK-based but US sports-focused Angstrom for up to £203m in July. 

• It said at the time it would enhance its parlay and in-play products as well as “accelerating pricing expertise and risk management”.

Greenblatt noted that Entain was acting in its own best interest, and in that of its shareholders, because US OSB and iCasino was the “biggest game in town by far”.

• “We have billions of dollars of capital value opportunity ahead of us,” he told the audience.

• “And Angstrom is one of the key elements of that. It’s a key unlock to gaining meaningful ground and that’s certainly our ambition, gaining meaningful ground on the incumbent leaders in sports.”

Inside the deal

E+M talks to Crispin Nieboer from Tekkorp, who advised on the sale of Thunderbite to Xtremepush.

The customer engagement platform Xtremepush has augmented its offering to betting and gaming firms with the acquisition for an undisclosed amount of the marketing gamification platform. 

• Nieboer says Tekkorp had been engaged by Thunderbite in November 2021, initially on the business development side and then latterly with the aim of finding a trade buyer for a business, which, he adds, had broad appeal.

Trade talks: The task with any sell-side transaction, Nieboer notes, is doing the leg-work around checking contracts, accounts and forecasts before trying to present the business to potential buyers. But as is the way with any business, it is a fluid process.

• “Sometimes we meet a client that isn’t quite ready to sell, as per Thunderbite in 2021,” he adds.

• “Then we can help guide the management team on what they need to do to be ready for a sale, and make introductions to potential clients and partners to assist with their growth.”

Recovery position: Nieboer notes that the global M&A environment has “somewhat” rebounded since the low point in the second half of last year and in comparison with the “blistering opaque” set in 2022. “We are seeing a bit of a recovery in our own industry,” he adds.

• “Following a lull in deals since mid 2022, we’ve seen more deals come through,” he says, pointing to recent M&A involving Entain/STS, Fanatics/PointsBet and Aristocrat/NeoGames. 

• He suggests there are signs of “more confidence from buyers and sellers to transact than we [saw] in the latter half of 2022”.

• “Recent successes help of course with a sales process, but it’s the overall growth story and the financial impact an acquisition can have on the buyer’s business that really count.”

Leap and bound: It is the potential of using M&A as a springboard to accelerate the business in new markets that remains the top driver for corporates, Nieboer says. 

• “For operators who are slow in entering markets where they feel the challenge of building a podium position via pure organic is too challenging or risky, M&A is often an attractive option,” he argues. 

• “This is even more the case where the market has recently restricted advertising, making it harder to build a brand and share of voice organically,” he adds. 

• “Usually it’s more about geographic expansion rather than buying into a single product.”

• Still, he suggests some operators are interested in acquiring specific elements of technology or skill sets they need for certain markets. 

The price of admission: Pricing is “still not quite where it was” for B2B and affiliates, Nieboer says, where valuations have fallen since Jan 2022. But B2C has “stayed pretty constant”. 

• “Some of the key elements on achieving higher valuation multiples in B2C are, first, whether or not the target has a podium position in its core market or markets,” he says.

• Then it comes down to whether it is achieving higher than average growth rates and also whether it deserves a “scarcity premium” due to a lack of alternatives in those core markets.

• Lastly, the valuation will be driven by the value of proprietary tech and brand.

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Hit the North 

Playtech’s recent comments regarding NorthStar Gaming will quiet fears over the Canadian operator’s future.

With a little help from your friends: If shareholders at NorthStar Gaming were at all worried about the Ontario operator’s progress since launching in May22, then their fears might have been allied somewhat by Playtech CEO Mor Wewizer’s comments during his company’s H1 earnings call last week.

• NorthStar had issued a going concern notice at the time of its own Q2 earnings, saying it lacked the funds to guarantee it would operate for the next 12 months.

• The company lost C$4.8m in the quarter, down from C$5.6m during last year’s Q2. Revenue was up 27% sequentially to C$4.6m.

Weizer noted NorthStar was one of its structured agreements and that Playtech was “excited to see how this grows” as the company accelerates its growth in Ontario and across Canada.

• Playtech said in its results that NorthStar was currently in the process of raising more capital from its and other investors.

• The notes on the results pointed out Playtech originally issued a convertible loan worth C$12.4m to NorthStar in Dec22. 

• This was subsequently converted into a shareholding of 16% of the company. But Playtech has the right to extend this to over 20%.

The summer in transactions

Light & Wonder’s deal to buy the remaining slug of SciPlay it didn’t own was the headline move over the summer.

The big deal: Light & Wonder finally got its man after it convinced the holders of the shares it didn’t already own in social gaming spin-off SciPlay to accept an offer pitched at $22.95 per share at an implied value of $2.5bn and an EV/EBITDA multiple of 11.7x. 

• Analysts at Macquarie noted this was above the offer the last time Light & Wonder bid, back in May, when it offered $20 a share.

Other deals this summer

• In July, Raw iGaming acquired the arcade elements of the FunFair Games offering for an undisclosed sum. 

• Entain bought Angstrom (see above). 

• Aruze Gaming sold its slot assets to Play Synergy and its electronic table games portfolio to Interblock, both for undisclosed sums. 

• Glitnor paid for a 37.5% stake in iCasino startup brand PlayStar via its Ventures arm, again for an undisclosed amount. 

• FDJ bought Premier Lotteries Ireland for €350m. 

• Playtika bought the Youda Games portfolio of assets from Azerion for €81m, which could rise to €150m depending on performance. 

• Better Collective bought the Brazilian sports media brand Torcedores.com for an undisclosed sum.

Under the radar deal of the month: 888Africa is starting to make waves, announcing via social media that it has passed the 1m customer mark. Aiding its growth will be the acquisition of the Kenya and Zambia-licensed BetLion for an undisclosed sum.

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