Aristocrat could win the jackpot with $3.9bn Playtech bid
If it pulls it off, Australia’s Aristocrat will be one of the leading gaming operations in the world through a mix of steady organic growth and strategic acquisitions.
The latest deal is a big bet on the fast-growing online Real Money Gaming sector (RMG), including sports betting, which is valued around $95bn. Playtech develops platforms and technology for the global online gaming and sports betting industry.
The value is in combining this Playtech technology with Aristocrat’s strong content of fun games and its regulatory relationships in the US, which the business will leverage aggressively to grow further.
“It will deliver Aristocrat instant material scale and capability – the opportunity to enter the fast-growing online RMG at an early stage in its history is particularly exciting,” CEO Trevor Croker told analysts.
Real Money Gaming has been the missing piece for Aristocrat, which has long been in social gaming.
Aristocrat was founded by the legendary Len Ainsworth who built the first poker machine in Australia in 1953. These days it tends to travel below the media radar.
In fact, the company has been actively looking for a match over the last 12 months, advised by Goldman Sachs and to be financed by UBS.
The deal will no doubt help the two investment banks retain their No.1 and No.2 rankings on the M&A tables.
In a trading update also released on Monday, Croker said Aristocrat expected to announce strong results for the year to September 2021 with net profit before amortisation up 81 per cent to $894m.
That may seem odd for the Australian-listed company, given our lockdowns, but Australia and New Zealand account for a mere 7 per cent of group revenue. Thirty-three per cent of revenue comes from the Americas, and 57 per cent from digital.
This is one reason that Aristocrat’s share price has been travelling well through the pandemic, up 46 per cent this year. In contrast, since its high of around £10 in 2017, Playtech’s share price has slid down to £4.29 this week.
Playtech also struggled to replace its permanent chairman for over a year, finally appointing Brian Mattingley in June. It may well be a short gig for Mattingley, although at least the Playtech board will be able to point to a sizeable 58 per cent premium in the bid.
Tech companies trade on high multiples and Playtech itself is not a particularly liquid or well-covered stock. But the bid price reflects two other factors: first, the value in the strategic fit for Aristocrat; and second, the timing of the bid, which looks almost opportunistic given the huge shift to online gaming during the pandemic and the expected growth trajectory of RMG in the US.
“As US states regulate to allow online RMG, our gaming customers are increasingly demanding premium RMG solutions, making it the right time for Aristocrat to enter the segment,” says Croker.
The growth trajectory is impressive. RMG is currently legal in six US states with projections that it may reach 20 states by 2025.
Croker says internet gaming and sports betting are expected to reach to $25bn-$30bn by 2030. Sports betting is already legal in 20 states and expectations are it will increase to more than 40 states by 2025.
Aristocrat already has a strong physical presence in US gaming jurisdictions, operating in 41 states, including all six jurisdictions where i-gaming is legal.
“Our expectation is that RMG online operations will enhance our existing gaming business, with limited risk of cannibalisation given complementary portfolios and strong customer engagement,” says Croker.
The takeover will need thumbs up from 75 per cent of shareholders by value but Aristocrat has already secured unanimous approval from the Playtech board.
It also has support from 20.7 per cent of the Playtech shares, including the major investor – and one of the more vocal ones – SpringOwl’s Jason Ader who holds around 5 per cent. Ader has been agitating for a sale of Playtech, having seen his stake slide since he bought in back in 2018.
Funding for the takeover will come from $1.1bn in cash, $1.8bn in debt and a $1.3bn equity raising from both institutional in retail investors. A trading halt the shares will continue until Thursday.
The Aristocrat bid kicks off a busy week in gaming with AGMs for Tabcorp and Crown.
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Spring has sprung, the recovery is under way, the races are back and gaming business Aristocrat has pounced with a $3.9bn bid for London-listed business Playtech.