Late last week, it was reported that William Hill Plc (WIMHY) is the target of takeover attempts by Apollo Global Management Inc., a private equity firm with a history of investments in the gaming sector, and Caesars Entertainment Inc. The sportsbook operator confirmed in a statement that it received “separate cash proposals” from the two potential acquirers. Shares of the U.K.-based company rose +43.5% on the news (the share price has since declined 13% from Friday’s close). A statement from William Hill’s board earlier today indicated Caesars’ bid valuing the company at $3.7 billion, a +/- 25% premium to the share price before the takeover interest was first reported, has been accepted (pending shareholder approval).
The latest play for the British gambling group come with the sports betting industry “in the throes of a long-term trend towards consolidation,” Chris Grove said (of course, it has been happening on the retail casino side for years). The Eilers & Krejcik Gaming analyst explained “DraftKings’ valuation and the obvious public demand for a potential category leader that can legitimately compete in a nationwide market” has and will continue to lead operators to exhaust all potential avenues—including the pursuit of mergers and acquisitions (see: Eldorado/Caesars, William Hill/CG Technology)—in their efforts to create scale.
Our Take: Opportunistic gaming operators are pursuing growth through M&A because, as Grove said, “online gambling is a scale business—the bigger you get, the stronger your bottom line becomes.” The U.S. is also a big market, so gaming companies require both financial firepower and a significant stable of assets (think: brand, technology, customer relationships) if they’re going to succeed. The Eilers & Krejcik analyst explained, “[Companies] have to be of a certain size in order to achieve the kind of liquidity needed to be a viable public listing (at least from the institutional investor POV), and there is only so much revenue to go around in the U.S. right now.” Takeovers are one way companies can increase topline revenues/market share to reach that size.
Dustin Gouker (head of U.S. content, LegalSportsReport.com) agreed that without “a large bankroll and extensive infrastructure it’s going to be hard [for an operator] to cut through the noise [in the U.S].” Aside from the market share DraftKings and FanDuel have managed to command, companies entering the market now are going to be forced to compete with Barstool, which “instantly is going to become a pretty big player, and MGM, which has devoted a ton of resources [to customer acquisition] over the last six-to-nine months,” he said. There simply isn’t a path to success for small U.S. sportsbook operators with the cost to obtain customers so high.
Considering few believe DraftKings and FanDuel can be had at a reasonable number, William Hill is arguably the biggest fish available in the U.S. gaming space. (Including its Caesars properties, the company operates 170 retail locations across 13 states and controls 29% of domestic sports betting market share.) But Grove estimates there are “probably two or three dozen companies” that could be considered attractive takeover targets, making it likely there will be an “intense amount chatter surrounding M&A” for the next few years. Among the independent companies who could be primed for purchase, “theScore is active in a few markets, but hasn’t gotten a ton of traction, and PointsBet is getting more traction than theScore but still remains in the low- to mid-single digit market share [range],” Grove said. Of course, “depending on which way the winds blow,” PointsBet could also be considered a consolidator, he said. Gouker suggested Kambi (“if a company wants its own tech stack”) and Kindred would also be potential buyout candidates.
William Hill has been a takeover target for much of the last decade (think: 888, GVC), so the fact that the company drew interest is not exactly surprising. Grove says the difference this time around is “the U.S. opportunity has sparked interest from a different set of suitors” (see: U.S. based). It should be noted that Caesars tried to merge with WIMHY in the summer of 2019 and was unsuccessful.
A Caesars-William Hill merger is seemingly logical for both sides. “There’s a longstanding relationship between the Eldorado execs and the William Hill execs (Eldorado owns Caesars),” Grove explained. “William Hill has already built out a robust team for the U.S. opportunity (think: tech, marketing, compliance) and [they come with] proprietary technology.”
Of course, Caesars—which uses William Hill as its consumer-facing sports betting platform—also already controls 20% of the company’s U.S. operation, “so bringing [William Hill] in house certainly makes sense,” Gouker said. By having WIMHY under the same roof, Caesars (CZR) believes it can take advantage of synergies not realized with the two entities operating more in a partnership capacity; like turning its 60 million total rewards users into sports bettors and iGamers. William Hill does not currently have access to that database.
If Caesars manages to complete the acquisition, the company will look to sell off William Hill’s international business (which could bring in roughly $2 billion, according to Roth Capital Partners’ David Bain). But look for the company to also spin off William Hill U.S. and Caesars’ digital assets into its own unit. “With the multiple gap between what [an operator] gets on their retail business in the U.S. and what the market is assigning to digital businesses, it’s too big of a delta to keep those businesses under the same roof,” Grove said.
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