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The Stars Group Inc. (NASDAQ:TSG) said Tuesday it’s paying $102.58 million to acquire the 20 percent of Australian bookmaker BetEasy it didn’t previously own, a move that drew compliments from at least one analyst covering the Canadian online gaming company.
Ahead of the Flutter deal. Stars Group is making moves to bolster its position in the Australian market. (Image: AP News)
PokerStars parent The Stars Group is itself the target of a takeover – a $12.2 billion deal announced about two months ago that would see the company combine with UK-based Flutter Entertainment. In recent years, TSG has been an active buyer of sports betting assets in Australia.
As a reminder, Australia sports betting has experienced unique regulation challenges, and TSG acquired William Hill Australia and Crownbet (combined BetEasy) in the last few years,” said Macquarie hospitality analyst Chad Beynon in a note obtained by Casino.org.
In the US, TSG has access to one of the world’s fastest-growing sports wagering markets via a partnership with the Fox network’s FoxBet. Earlier this year, Fox purchased nearly five percent of TSG for $236 million, with an option to acquire half the Canadian company down the road.
TSG became a global player on the sports betting stage via its 2018 $4.7 billion buy of Sky Betting & Gaming, a deal that brought the Sky Bet, Sky Vegas, Sky Casino, Sky Poker and Sky Bingo brands under TSG control.
Regulatory Issues
The combined Flutter and Stars would have dominant positions in Australia and the UK, two of the world’s largest betting markets, so much so that regulators could force the British company to jettison some assets to sign off on the deal.
The two companies currently have three of the top seven online gaming brands in the UK. That’s stoking speculation that regulators there could force Flutter to sell the prime Paddy Power asset to approve the merger. There are clear incentives for Flutter to consummate the TSG marriage.
The combined pro-forma (PF) revenues would be $5.40 billion, with pre-synergy earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.14 billion, and post synergy EBITDA of $1.62 billion,” said Beynon. “We estimate this implies 13.0/11.0x pre/post-synergy EBITDA for the deal. Given that the deal is all stock, combined Net Debt/EBITDA leverage would be 3.5x vs TSG’s current leverage of ~5x.”
Translation: Flutter’s deal for TSG should be a revenue booster and cost-cutter, assuming it passes regulatory scrutiny.
Dominant Market Positioning
Assuming no asset sales and based on current revenue streams, the combined Flutter/TSG would generate nearly two-thirds of its revenue in the UK and Australia.
Currently, TSG relies on the Land Down Under for nine percent of turnover. But that figure jumps to 15 percent after being acquired by Flutter, according to Beynon. Nearly half the married entity’s revenue would come from the UK and Ireland.
“Australia is the second-largest wagering market in the world behind the UK, and FLTR will have industry-leading share in each market,” said Beynon. “Given that scale matters, we view the acquisition as a smart investment.”
The analyst has a $27 price target on Stars Group stock, 11.1 percent above where the shares closed today.
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