PokerStars Owner Snaps Up SkyBet, Creates Largest Listed Gambling Company

Canadian online gambling giant The Stars Group announced Saturday that it would buy UK counterpart Sky Betting & Gaming in a move that would create the largest publicly listed online gambling company, boost The Stars Group’s sports betting product, and secure the combined entity with better positions in key online gambling markets amid intense competition.

The deal was valued at $4.7 billion and is expected to be completed in the third quarter of the year. It is subject to approval from the Toronto Stock Exchange, NASDAQ, and gambling regulators.

Under the terms of the agreement, The Stars Group will pay cash and stock to SkyBet owners CVC Capital Partners and Sky Plc. The cash portion of the deal totals $3.6 billion. The remainder will be paid in 37.9 million newly-issued common shares.

The Stars Group owns the world’s largest online poker operator, PokerStars. The Canadian gaming firm acquired the popular poker brand and its sister brand Full Tilt Poker back in 2014 in a landmark $4.9-billion deal. The Stars Group, then Amaya, was led by Canadian businessman David Baazov at the time. He left his roles at the company in the summer of 2016 in the wake of insider trading charges which he still battles.

SkyBet is currently 80% owned by CVC Capital Partners and 20% owned by its original owner Sky Plc. The private equity firm bought a controlling stake in the major UK gambling operator in 2014 for £720 million. The announcement about The Stars Group’s purchase of SkyBet comes shortly after media reports have emerged that the latter would be floated on the London Stock Exchange later this year.

According to business analysts, SkyBet is one of a number of private companies to scrap IPO plans amid unfavorable market conditions and accept offers from cash-rich buyers instead.

Financing

As mentioned earlier, The Stars Group would pay $4.7 billion in cash and common shares. The company said in a Saturday statement that it has obtained approximately $6.9 billion worth of debt financing and would use the money to pay the cash portion of the acquisition deal, to repay SkyBet’s outstanding debt, and to refinance its existing first lien term loan.

This is the Canadian group’s second $4-plus-billion acquisition deal in the past four years, following the purchase of PokerStars and Full Tilt Poker in 2014. Back then, Baazov was admired for securing $1-billion investment in the deal from Blackstone, which has been known as one of the most tight-fisted banks.

Benefits

The Stars Group and SkyBet’s consolidation will create the world’s largest publicly traded gambling company. It will also allow the two companies to extend their global footprint and will place the combined entity in a better position to enter any newly-opened markets.

SkyBet currently has the largest active online player base in the UK, according to the Saturday statement announcing the deal. With that said, it is among the largest gambling operators in the world’s largest regulated gambling market. It is also important to note that 80% of its revenue is generated from mobile.

While SkyBet’s product portfolio includes different types of online gambling offering, sports betting has always been its leading product. And The Stars Group has been actively looking namely for a partner with strong sports betting presence to improve its own betting brand, BetStars.

The acquisition of SkyBet will thus allow the Canadian giant to gain more ground in the important but highly competitive UK market. The Stars Group will also be able to leverage the experience its new partner has gained over the years since 2001 when it was established.

Online poker currently generates two-thirds of the Canadian group’s annual revenue. However, the segment has seen little development over the past decade. This is why The Stars Group has been exploring opportunities that would allow it to reduce its reliance on online poker and boost its sports betting and casino brands.

SkyBet’s unaudited 2017 results show that the company generated revenue of £624 million and adjusted EBITDA of £202 million. The Stars Group said in the Saturday statement that including proceeds from SkyBet as well as from CrownBet and William Hill Australia, which will, too, be acquired by the Canadian giant, its 2017 revenue mix would have been 37% poker, 34% sports betting, and 26% casino.

Key Markets

The UK is a key regulated jurisdiction for major gambling companies. However, the extremely tough and ever-growing competition makes player acquisition and retention a really difficult task. In addition, the UK Gambling Commission has tightened its grip on online gambling operations and has been slapping massive fines upon erring companies. SkyBet itself was recently imposed a £1 million fine for player protection failures.

Italy is another important market for both The Stars Group and SkyBet. PokerStars has been reigning the country’s online poker market for quite some time now, and has also recently positioned itself as the market leader in the online casino segment. As for SkyBet, it launched its online sportsbook in Italy in late 2016 as part of regulated market expansion plans.

The Stars Group acquiring SkyBet will also better position the two companies for an entry into the US sports betting market, in case a long-running ban on the provision of this type of gambling service is lifted. The US Supreme Court is set to rule on whether the Professional and Amateur Sports Protection Act of 1992 should be annulled in favor of the creation of a regulated sports betting market. A decision is anticipated by the end of June, possibly as soon as next week.

Shopping Spree

In February, The Stars Group announced that it would buy a 62% stake in Australian betting operator CrownBet for $117.7 million. It became known shortly after that CrownBet was selected as the preferred bidder for William Hill’s Australian division.

The UK gambling giant, which was previously approached by The Stars Group for a potential merger, announced early in January that it was reviewing its ailing Australian business and was considering its potential sale. CrownBet is now set to acquire William Hill Australia for $244 million.

The Stars Group has thus secured an entry into the rapidly growing Australian betting market with a portfolio of brands that are already familiar to local bettors. CrownBet’s acquisition of William Hill Australia will make it the third largest operator in the market. However, it will have to fight massive competition from A$11-billion industry giant Tabcorp, recently formed by the merger of Tabcorp and Tatts.

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