PokerStars-owner The Stars Group has agreed to acquire Sky Betting & Gaming (SBG) in a US$4.7bn deal that will create the world’s largest publicly listed online gaming operator.
SBG has been acquired from private equity firm CVC Capital Partners and European sports broadcaster Sky for $4.7bn, of which $3.6bn is payable in cash and the remainder in 37.9m newly-issued shares in The Stars Group, based on Friday’s closing price of CAD$37.36 per share.
As well as benefiting from identified cost synergies of at least $70m per year, The Stars Group said that the acquisition will provide greater revenue diversification and significantly enhanced exposure to sports betting, as well as an increased presence in regulated markets, particularly the UK.
"The acquisition of Sky Betting & Gaming is a landmark moment in The Stars Group's history," said chief executive Rafi Ashkenazi. "SBG operates one of the world's fastest growing sportsbooks and is one of the United Kingdom's leading gaming providers.
“SBG's premier sports betting product is the ideal complement to our industry-leading poker platform. The ability to offer two low-cost acquisition channels of this magnitude provides The Stars Group with great growth potential and will significantly increase our ability to create winning moments for our customers."
The company explained that the acquisition will complement its PokerStars business and enable more effective cross-sell to players across multiple verticals. It will also benefit from improved products and technology as a result of the addition of SBG's online casino and sportsbook offerings, and portfolio of mobile apps.
SBG currently boasts the UK’s largest active online player base, with over 80 per cent of revenue generated from mobile. Last year the company recorded a 46 per cent increase in annual revenue to £624m, with adjusted EBITDA up by 51 per cent to £202m.
The Stars Group said that its acquisitions since the beginning of 2018 will significantly diversify the company's revenue base. Including SBG, CrownBet and William Hill Australia, the company's 2017 revenue mix by product would have comprised 37 per cent poker, 34 per cent sportsbook and 26 per cent casino. On the same basis, 75 per cent of The Stars Group's revenue would have been generated within locally regulated or taxed markets.
"We are delighted to join forces with The Stars Group," said Sky Betting & Gaming chief executive Richard Flint. "We have had a fantastic last few years and would like to thank CVC and Sky for supporting us in becoming a leading online operator in the UK. This transaction allows us to offer our best-in-class products to a truly global audience. We're excited about our future together."
Following the acquisition, SBG's Yorkshire base will serve as a major hub for the enlarged group.
"Richard and his team have done a fantastic job building Sky Betting & Gaming into one of the UK's largest and fastest growing operators,” commented Pev Hooper of CVC which acquired a controlling stake in SBG for £800m at the end of 2014. “We have thoroughly enjoyed working closely with the team and our partners at Sky.
“This combination with The Stars Group opens a new and exciting chapter for SBG to accelerate its international growth, and we look forward to continuing the journey as a shareholder in the combined group."
Sky group chief executive Jeremy Darroch added: "This agreement is an important milestone in SBG's growth story and a testament to what we and the whole SBG team have achieved. We look forward to the next chapter and continuing our long-term partnership with SBG as part of The Stars Group."
To finance the acquisition, The Stars Group has obtained fully committed debt financing of $6.9bn, including $5.1bn of first lien term loans, $1.4bn of senior unsecured notes and a $400m revolving credit facility. The funded proceeds of $6.5bn will be used for the cash portion of the transaction, refinancing the company's existing first lien term loan and repaying SBG's outstanding debt.
The Stars Group's board has unanimously approved the transaction, with the company expecting to complete the acquisition during the third quarter of this year, subject to obtaining customary approvals from the Toronto Stock Exchange, Nasdaq, and other regulatory authorities. Approval of the transaction by The Stars Group's shareholders will not be a requirement or condition to closing the deal.
The Stars Group will retain SBG's rights under certain commercial, licensing and marketing arrangements with Sky, covering the UK, Italy, and Germany, as well as framework to cover additional mutually agreed upon regulated geographies in the future.
"Following this transaction, The Stars Group will have significantly enhanced scale and a highly-regarded global brand portfolio,” concluded Ashkenazi. “As a result, we are well positioned to realize our vision of becoming the world's favorite iGaming destination."
Shares in The Stars Group Inc (TSX:TSGI) closed up 2.02 per cent at CAD$37.36 per share in Toronto Friday, just off their 52-week high of $38.43 per share set on March 13th.