Ann: BetMakers submits proposal to acquire Tabcorp assets, page-165

The Extreme Opportunities Team | May 28, 2021

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BetMakers Technology Group (ASX:BET) confirmed today speculation that it is interested in acquiring assets owned by Tabcorp Holdings Limited (ASX: TAH).

According to the release, the company has submitted a non-binding, indicative proposal to acquire Tabcorp’s Wagering and Media business for an enterprise value of $4 billion.

Under the indicative proposal, Tabcorp would receive $1 billion in cash, which BetMakers plans to fund through debt financing, and $3 billion in BetMakers shares. In respect to the latter, the number of shares to be issued will be fixed at the time a transaction is agreed and priced at a 15% premium to the traded price of BetMakers prior to signing.

Based on the 10-day volume weighted average price (VWAP) to 26 May 2021, the indicative proposal would provide Tabcorp shareholders with an approximate 65% interest (on a fully diluted basis) in the combined BetMakers and Tabcorp Wagering and Media business plus A$1 billion in cash to Tabcorp.

Furthermore, BetMakers has proposed that the share consideration is distributed in specie to Tabcorp shareholders on a pro rata basis. This will allow Tabcorp shareholders to convert their indirect interest in Tabcorp Wagering and Media into a direct and liquid shareholding in the combined entity, providing flexibility and choice.

The Combined Entity is expected to be moderately geared at less than 2.5x net debt / EBITDA on a pro forma basis.

Acquisition rationale
There are a number of reasons that BetMakers believes the acquisition and proposal represents a compelling value proposition for both sets of shareholders.

One is that it brings together two highly complementary businesses to create a competitive global wagering and technology platform with scalable operations across both B2B and B2C markets.

Management also notes that the combined entity will be able to take advantage of BetMakers’ technology and product innovation to compete more aggressively in an increasingly digital-driven consumer market.

Another is that global opportunities will be pursued by leveraging the incumbent and iconic Australian TAB brand and content with BetMakers’ established global network, market access and strong partnerships with US racing bodies.

It also expects the monetisation of Tabcorp Wagering and Media’s media content on a global scale through BetMakers’ network of global partners.

BetMakers’ Strategic Adviser, Matt Tripp, said: “I am excited by the potential opportunity to reinvigorate the Tabcorp Wagering and Media business. There is significant potential for the business to grow in partnership with BetMakers and I hope to get the opportunity to support the Australian racing industry which relies on the success and growth of TAB.”

“I have been very impressed with the world-class team BetMakers has put together and the enormous growth opportunities they have created globally, including in the rapidly emerging US wagering landscape, and the timing could not be better for this unique opportunity. Aside from the value that this offer is anticipated to unlock for shareholders in both companies, this is an incredibly exciting opportunity for the Tabcorp Wagering and Media business to maximise its commercial potential on a global scale.”

Foolish Thoughts
First of all, it’s important for us to stress that this is a proposed deal and there are no guarantees that the deal will actually go through. At the moment, Tabcorp has other offers on the table including $3.5 Billion all cash deals from American private equity group Apollo Management and UK-listed sports betting company Entain which owns brands like Bwin and Ladbrokes.

Our initial thoughts however is that this is such a large and risky acquisition to make. At the moment, Betmakers has a market cap of just over $1 Billion and it is attempting to swallow a $4 Billion whale.

For the acquisition to be a success, the combined entity would need to deliver success on the synergies proposed by management. Tabcorp’s business has been struggling recently and it is essentially a ‘turnaround’ play, so can BetMakers succeed in doing that?

It’s hard to say. Our main attraction to BetMakers is its fast-growing and large market opportunity in the US. The company has been making clear inroads into that market and the investment case for BetMakers as a top growth company was simple. The addition of Tabcorp adds a layer of complexity and muddies the water.

That being said, if there is an ace in the hole for BetMakers, it is Matt Tripp who is the lead sponsor for the deal. He is highly regarded in the industry for having taken on Tabcorp by turning Sportsbet into Australia’s second-largest bookmaker (behind Tabcorp). He also set up BetEasy alongside Crown Resorts and is probably Australia’s number one dealmaker and powerbroker in this space. Matt Tripp’s involvement with BetMakers has been a key part of our investment thesis and so an acquisition comes as no surprise, although the sheer size of it is surprising. For now, we are choosing to back management and their proven expertise.

If Tabcorp shareholders do turn down the all cash deals and accept BetMakers offer (which will be paid for mostly by BetMakers’ shares), then it would be a huge vote of confidence in the prospects of the combined companies.

There are likely to be more twists and turns along the way and so we will keep monitoring developments. We maintain our Buy recommendation on BetMakers.