Pokies titan Aristocrat says $1.8bn NeoGames deal will complete its online gaming ‘build and buy’ plan

The ASX-listed poker machine company is pivoting to become an online gaming giant, agreeing to buy NeoGames for $1.8bn.

Poker machine titan Aristocrat Leisure has made its biggest foray into the fast-growing online gaming market, agreeing to buy NeoGames for $1.8bn as it rebounds from its failed takeover of British software group Playtech.

The company also announced on Monday that it would increase the size of its share buyback by $500m, taking the total value of the program – which is expected to run until May next year – to $1.5bn.

Investors have been waiting patiently for Aristocrat to unveil its full real money gaming (RMG) strategy – which allows people to wager cash online – after its $3.9bn takeover of Playtech collapsed in February last year.

NeoGames, which is listed on the NASDAQ, will help plug the void Playtech left, offering Aristocrat global scale in the RMG market and be accretive in the first full-year of ownership.

Aristocrat shares advanced 2.1 per cent to $39.51 on Monday against a flat broader sharemarket.

Chief executive Trevor Croker said the deal, which remains subject to NeoGames and regulatory approval, would complete Aristocrat’s “build and buy” strategy dubbed “Anaxi”, which it formed in the wake of the failed Playtech bid.

Mr Croker said Aristocrat already had support from 61 per cent of NeoGames’s shareholders. “So I’m feeling pretty confident.”

Aristocrat has agreed to buy NeoGames for $US1.2bn ($1.8bn) or $US14.45 a share. This represents a premium of 104 per cent to the three-month volume-weighted average price of NeoGames shares to May 12.

NeoGames operates its proprietary technology platforms across iGaming, iLottery and online sports betting. It employs about 1100 staff and has over 200 customers in more than 50 regulated markets.

Mr Croker said the deal would allow Aristocrat to enter the fast growing iLottery market but iGaming presented a bigger opportunity.

“I still believe iGaming is a bigger growth opportunity just because it’s so sparsely penetrated. But I do get excited by the lottery opportunities.

“Bringing together NeoGames and our growing Anaxi business will position Aristocrat with global scale and capability in the growing online RMG industry,” Mr Croker said.

“We see great opportunities in the combination of our complementary businesses, with clear revenue and growth potential that comes with a complete and seamless online RMG solution.”

The deal represents a valuation multiple of 15 times NeoGames adjusted earnings before interest, tax, depreciation and amortisation for the year to December 31, 2023.

Aristocrat will fund the deal with existing cash and following its completion will have a debt/EBITDA ratio of 0.7x.

While Mr Croker said the acquisition completed Aristocrat’s build and buy strategy he was open to further mergers and acquisitions.

He expected further consolidation in the US market. His comments came as ASX-listed betting operator PointsBet sold its American operations to Fanatics Betting and Gaming for $US150m.

“There is going to be two lots of consolidation. There will be operator consolidation … and also the traditional land base customers that are in iGaming are going to look to fill the strong position to complement their retail footprint.

“Our focus goes to closing this (NeoGames) deal … and then the integration and accelerating our growth out of it. That said though, as customer needs evolve and the industry and as segments evolve, we’ll continue to keep an open look out for M&A.”

Wilsons analyst Greg Burke said the NeoGames deal represented Aristocrat’s biggest stride into the RMG market.

“We see this as a strategically sound acquisition,” Mr Burke said in a note to investors.

“Since the unsuccessful Playtech deal, we have been patiently waiting for Aristocrat to announce further M&A to gain a foothold in the highly complimentary online RMG industry.

“The acquisition of NeoGames gives Aristocrat global scale and capability in online RMG, which we view as the next significant leg of growth for the business. Online RMG has a large total addressable market and presents significant growth opportunities for Aristocrat, particularly in the North American market which is expected to grow at a CAGR of ~27 per cent between 2022-27 as more US states move to regulate the industry and as RMG gains popularity amongst the population.”

Aristocrat had been scouting for potential deals after its Playtech bid collapsed last February. It had raised $1.3bn in October 2021 to acquire Playtech, which failed after a bloc of investors – led by Hong Kong-based former Playtech boss Tom Hall – voted against the deal.

Aristocrat has been gaining traction steadily in its build and buy strategy. In February it struck a deal with BetMGM — a partnership between MGM and Entain — to provide gaming content on BetMGM’s online casino, giving it a vote of confidence in its virtual expertise.

That followed it finalising its takeover of British iGaming content supplier Roxor in January.