BetMakers Technology Group: A Transformational David and Goliath Deal
BetMakers Technology Group
A transformational David and Goliath deal
BetMakers Technology Group (ASX:BET) is a B2B software services business focussed on servicing the wagering market and race operators globally. The company has announced it has submitted an indicative proposal to acquire Tabcorp’s (ASX:TAH) wagering and media business for $4b, including $1b cash, to be funded through debt financing, and $3,0b in BetMakers shares, which equates to approximately 1.79b shares. The share consideration has been priced at a 15% premium to the 10-day volume weighted average price (VWAP) to 26 May (~$1.46). The deal would give TAH around 65% of the combined BET/TAH wagering and media business. BET has proposed that share consideration be distributed in specie to Tabcorp shareholders on a pro rata basis. The combined entity would be moderately geared at less than 2.5x net debt/EBITDA on a pro forma basis. Tabcorp noted it has received the unsolicited, non-binding and indicative proposal and that the board has not yet formed a view on its merits. It will be assessed in the context of TAH’s previously announced strategic review which is evaluating all structural and ownership options, including the potential sale or demerger of its Wagering and Media businesses, to maximise the value of TAH’s businesses for the benefit of shareholders.
Business model
BetMakers operates a SaaS style model for its Racing Data and Informatics platforms: Global Betting Services and DynamicOdds. Racing bodies and bookmakers pay a monthly recurring fee for access to the platforms with contract periods usually of 3 years’ duration. BetMakers also generates revenue from the content distribution deals it has in place with international racing authorities such as US Greyhounds and US Racing and UK Greyhounds which are more aligned to share of turnover. Over time we expect the SaaS revenue share to average ~45-50% as the company expands its racing data and informatics platforms and new integrity platforms in both Australia and offshore.
Transformational transaction if it proceeds
BET’s indicative proposal is a potentially transformational deal for both companies if it proceeds. The transaction is conditional on the completion of due diligence, and likely approvals from the ASX, racing industries, BetMakers and potentially Tabcorp shareholders. The $4b indicative proposal implies a transaction multiple of 10.8x the wagering and media division’s FY20 EBITDA ($371m). If it proceeds, we see the addition of TAH’s wagering and media division adding weight to BET’s competitive standing in its US wagering operations. Tabcorp has long been criticised for not more aggressively pursuing opportunities in the US market. This transaction potentially will unlock those opportunities for TAH shareholders.
Forecasts under review
As flagged in our flash comment of May 21, our BET forecasts are under review, giving due consideration to the US fixed odds wagering industry. Our current forecasts only contemplate revenues derived from fixed odds wagering in New Jersey which is close to finalising its legislation. The Tabcorp wagering and media acquisition, should it proceed, will also be transformational for our forecasts. In FY20, the wagering and media business reported revenues of $2.1b and EBITDA of $371m.
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