What the OpenBet acquisition means for NYX and William Hill

5th April 2016 8:46 am GMT
It can’t be said that Vitruvian Partners selling OpenBet was a surprise. Rumours of the sale have been rumbling on since last year, and since February we have been waiting for an update. The buyer, however, may have surprised some.NYX was certainly in the mix to acquire OpenBet, albeit through a partnership with William Hill. Others such as Paddy Power Betfair, Playtech and two private equity firms were linked with the deal, and considering the presence of so many big hitters, NYX would not resent being described as the underdog in this situation. Yet here it stands as the winning bidder for OpenBet. It is a fascinating, if complex, deal. The presence of William Hill and SkyBet as new shareholders adds an intriguing element, with the operators acquiring a 19 and 5 percent stake respectively in NYX.  First things first: many will say NYX overpaid. It didn’t. It paid a multiple of 8.4X EBITDA for OpenBet, less than the reported £300m Vitruvian was pushing for, and has gained sportsbook technology, omni-channel capabilities, a range of new leading operator clients and many government-owned lottery partners. Deals are often done on multiples of between 8 and 12X EBITDA, so it has completed the purchase at the lower end of the scale. That’s not bad business.What does it mean for NYX?CEO Matt Davey believes his company is the most natural fit for OpenBet. They share many customers and similar business culture, and crucially, the deal plugs a major hole in NYX's product offering. “I’ve always had a view that we have this opportunity to build a really powerful digital gaming business,” Davey told Gaming Intelligence. “Key to that is having all the major product sets in one platform. That means one major relationship we can have with our customers across all verticals.” In essence he wants to be a Playtech, and acquiring a company that Playtech had an interest in isn’t a bad place to start. As a statement of intent the OpenBet deal is huge. And it’s more than just a statement. The deal gives NYX a huge opportunity to develop its omni-channel offering. Everyone has been talking about omni-channel, especially OpenBet and Playtech. NYX can now make a big play for this sector.Stealing a march on PlaytechPlaytech has the clients, the marketing capabilities, the sports betting software and the related services to become the leading sportsbook supplier in the industry. But there is still work to be done. It needs to wrangle these elements into an attractive, viable package that it can offer customers. William Hill’s 19 per cent stake in NYX/OpenBet suggests that Ladbrokes Coral will be a good place to start. Playtech has Ian Chuter, a talented industry veteran, working on this project and not many people will bet against him. But this will take time. If NYX can mobilise its sales resources to grow OpenBet’s client base, Playtech could find itself playing catch-up. The pressure is on for NYX to ensure that OpenBet’s client renewals this year are finalised. If it can show that clients other than William Hill and SkyBet are willing to maintain long-term relationships with the supplier, it could deny Playtech market share.Contrasting strategiesDavey believes that OpenBet remains “front and centre” as an important provider to a number of operators but he admits that “it’s one thing to say something and another to deliver.” His company will need to show that William Hill and SkyBet aren’t prioritised ahead of other partners. Yet this is where issues - and a key concern of the market - may arise. OpenBet, by design it feels, isn’t the sort of company to do deal after deal. Last year OpenBet CEO Jeremy Thompson-Hill told me that he sees the company as a “niche within a niche,” almost a bespoke solutions provider for the biggest and the best – to the point that it turns down “around 90 per cent” of approaches from potential partners. “Our solutions are tailored for high volume operators that are prepared to make the long-term financial investment to work on a large scale,” he explained. “For a company like OpenBet, smaller companies perhaps won’t move the platform forward. “If you’re not in a position where we feel we can really add value to a potential client over a ten-fifteen year period, perhaps we’re not the right company to work with.” Davey has immediately spoken of the potential to use NYX’s sales team to accelerate OpenBet's growth by targeting second-tier operators and combining its solution with NYX's own. This, he says, will appeal to smaller companies looking for an off-the-shelf solution.The William Hill questionSo where does William Hill fit into the deal? The operator’s £80m investment, coupled with a three-year development project to revamp OpenBet’s technology, and a 10-year supply agreement, feels suspiciously like an attempt to replicate the effects of the William Hill Online joint venture with Playtech. "Our new commercial agreement is a key step in delivering our technology strategy by enhancing our current platforms and, in parallel, developing a new back-end platform for William Hill to complement and support our Trafalgar platform which is focused on our front-end user experience," William Hill CEO James Henderson said of the deal. "This route draws on the OpenBet team's proven sports betting technology expertise and NYX's gaming platform to give us a bespoke technology solution to support and deliver our UK and international growth strategies. "I am delighted that William Hill is supporting NYX's vision for growth and expansion into sports betting alongside its strong gaming proposition." The work for William Hill will see NYX play to OpenBet’s strengths as a bespoke, top-tier service provider, but this would seem at odds with Davey’s plans for the business. It is a fine tightrope to walk, offering a bespoke service to some while also looking to make the solutions more attractive to a wider range of clients. William Hill is entering a dip. Whether this will develop into a longer period of decline remains to be seen. However, with concerns growing that CEO James Henderson is struggling to devise a viable strategy to turn the business around, its involvement in this deal fails to address those worries.The development dealDavey was vague about exactly what William Hill will gain from the development deal. He says that some elements will be exclusive to them but others will not. This could help the operator differentiate its sportsbook, but it is also paying to help improve its competitors’ offerings.  So William Hill is investing in a technology platform it already admits needs overhauling. NYX has a lot of strengths but it does not quite have the marketing prowess of Playtech. Look at how Ladbrokes and Gala Coral have seen results improve, or begin to improve, when fuelled by the marketing services the Israeli company offers. Meanwhile, William Hill has declined following the end of the William Hill Online JV. This simply feels like a defensive move on the part of William Hill, stopping Playtech from acquiring OpenBet to avoid being hemmed in by its former partner in all verticals. But Playtech could simply switch targets and acquire Amelco, another key sportsbook supplier for William Hill, and it would still find itself hemmed in by Playtech. How many platforms does William Hill need? It has the OpenBet platform, NYX’s OGS, Playtech’s platform, its NeoGames platform. It certainly feels as if the company is throwing everything at its problems in a desperate attempt to find a fix. In doing so it is yet to address declining player numbers and a stream of executive departures. The William Hill element is certainly baffling. The operator needs a major boost to halt its decline and but this £80m investment looks unlikely to provide it.  For NYX, however, the OpenBet acquisition offers huge potential. While it still has a way to go to rival Playtech, it is moving in the right direction. If it successfully renews a few of OpenBet's sportsbook customer contracts, takes advantage of the omni-channel potential and sorts out its sales strategy, who knows where this deal could take it. Following yesterday's news, shares in NYX Gaming Group Ltd. (Co. Data) (TSX:NYX) closed in Toronto Monday down 14.77 per cent at CAD$2.77 per share. Shares in William Hill plc. (Co. Data) (LSE:WMH) closed up 0.76 per cent Monday but were trading down 1.39 per cent in London early Tuesday at 326.40 pence per share.rhm@gamingintelligence.com
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