BetMakers Technology Group Ltd: Game Changing Acquisition, Valuation Upgraded
BetMakers Technology Group Ltd
Game changing acquisition, valuation upgraded
BetMakers Technology Group (ASX:BET) is a B2B software services business focussed on servicing the wagering market and race operators globally. The company’s technology and systems are used by every racing authority in Australia and most of the major online bookmakers. BetMakers is not a gaming company, it is a technology company that is facilitating commercial opportunities for racing authorities, rights holders, and corporate bookmakers while providing an improved racing experience for punters. The company has announced a transformational acquisition of the tote assets and technology of UK wagering technology peer, Sportech Plc (LON:SPO) for A$56.2m in cash. In our view, this is a game changing acquisition for BET, expanding its footprint into the global tote market and positioning it to rapidly rollout its managed trading services business as part of its fixed odds wagering ambitions. The acquisition will be funded by way of a fully underwritten $50m share placement at $0.60/share and a share purchase plan (SPP) to raise up to $10m. We have incorporated the capital raising and earnings estimates for the Sportech assets into our model which has had the effect of lifting our base case DCF valuation to $1.00/share fully diluted for in the money options and performance shares. Excluding in the money options and based on the share count post placement (assuming full SPP take up), the valuation is $1.17/share.
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. Of its $9.2m in revenue in FY20, 67% was generated under the SaaS model. 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. The acquisition of Sportech will deliver additional SaaS-style revenues from its tote technology as well as a share of turnover from its tote operations.
Transformational acquisition
BET announced yesterday that it was acquiring the US, UK and European racing and digital assets of UK listed wagering peer Sportech Plc (LON:SPO) for A$56.2m, in a transaction which on a FY20 combined pro forma basis would have seen BET deliver revenues of $56.1m and EBITDA of $7.7m (versus respectively $9.2m and $0.8m). The transaction, done on an implied EV/revenue multiple of 1.2x and EV/EBITDA multiple of 8.1x, will accelerate BetMaker’s international growth plans, particularly in the US where Sportech currently commands an estimated 30% of the US$12.4b pari-mutuel handle. We see the acquisition as a significant step up for BET’s position in the global wagering market and complementary to its ambitions to build a fixed odds wagering business in the US. The acquisition requires shareholder approval from Sportech’s shareholders which will be sought the week commencing December 21.
Base case DCF valuation upgraded to $1.00/share fully diluted
We have upgraded our base case DCF valuation to $1.00/share (previously $0.80/share) fully diluted for all in the money options, after incorporating our assumptions for the Sportech assets under BET’s stewardship. On the post-transaction share count, our base case DCF valuation is $1.17/share. We have incorporated little in our forecasts for potential synergies or growth uplift derived from potential upsell opportunities.
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