Aristocrat faces complex road to success with Playtech acquisition

The deal was announced yesterday, and would see Aristocrat buy 100% of Playtech for 680 pence per share.

Aristocrat received letters of intent to vote in favour of the acquisition from several Playtech directors and shareholders, including Setanta Asset Management and T. Rowe Price Group.

The letters of intent are in relation to 63.3 million Playtech shares, which make up 20.7% of Playtech’s outstanding shares.

Consent letters were also received from investors, including Goldman Sachs and Wells Fargo.

Mor Weizer, Playtech’s CEO, noted that the business combination would create one wide-ranging platform for the two businesses to operate, allowing Playtech to diversify its reach across sectors.

“This transaction marks an exciting opportunity in the next stage of growth for Playtech, and delivers significant benefits to our stakeholders, including our customers, our shareholders and our incredibly talented people,” Weizer says.

“This combination of our two companies builds one of the largest B2B gaming platforms in the world, with the people, infrastructure and expertise to provide our customers with a truly best-in-class offer across all areas of gaming and sports betting.”

Trevor Croker, CEO of Aristocrat, also commented on the size of the combination as well as opportunities for global expansion.

“The proposed combination would being together Aristocrat’s world-class gaming content, customer and regulatory relationships with Playtech’s industry-leading global online RMG platform and European B2C footprint,” he says.

Filling the void

Croker also added that the combination would at long last give Aristocrat exposure to the lucrative online market.

“Additionally, the business will be ideally positioned to unlock sustainable shareholder value by seizing opportunities in the fast-growing global online real-money gaming segment as they continue to open up, particularly in North America.”

“The proposed combination of Aristocrat and Playtech would materially accelerate Aristocrat’s growth strategy and deliver shareholder benefits long term,” Croker says.

“It would deliver Aristocrat instant material scale and capability in the US$70 billion online real-money gaming segment.”

Todd Eilers, an analyst at Eilers & Krejcik Gaming, commented on Aristocrat’s entry into the online gaming market, viewing the acquisition as mutually beneficial.

“We have been waiting for Aristocrat to enter the igaming market for several years,” said Eilers. “It’s an obvious void in their portfolio of business operations right now and the acquisition of Playtech gets them into this market in a sizable way.”

Eilers also noted the expansion opportunities available to Aristocrat, on the back of the acquisition.

“The biggest opportunity will be to introduce Aristocrat’s award winning land-based slot content across the Playtech network as well as launching iGaming operations and content in the US market,” continued Eilers.

“Aristocrat holds approximately 40% of the US/Canada land-based B2B market share currently and we would expect them to gain material share of the US/Canada iGaming market over the next couple of years.”

However, entry into the online real-money sector means facing more complex regulatory questions than are present with land-based gaming. Aristocrat will have to make decisions about certain markets in which Playtech operates.

Playtech’s full-year 2020 results revealed that its total revenue from unregulated markets excluding Asia was $136.7m, while for its half-year 2021 results, the total unregulated Asian revenue was $68.4m. This would suggest total revenue from unregulated markets came to more than $250m on a full-year basis, while Playtech’s overall revenue was $1.29bn in 2020.

Croker said Aristocrat would evaluate whether Playtech would continue to pursue a similar strategy in these markets post-merger.

“Yes there are unregulated aspects to it but that’s the nature of this industry,” Croker said.

“We are going to do a full review of all the jurisdictions against our risk appetite and our compliance program, being a land-based gaming operator.”

Value for money?

Paul Leyland of advisory business Regulus Partners pondered on the inevitability of a deal such as this, outlining that Playtech’s relatively low share price meant there had been recent suspicions that it would be an acquisition target.

“Playtech has been ‘cheap’ and therefore the subject of bid speculation for some time; it is significant that Aristocrat that has taken the plunge, in our view,” said Leyland.

As such, Leyland believes that Aristocrat may have overshot its acquisition price.

“However, €3.2bn to accelerate content distribution is perhaps in the ‘overkill’ category,” added Leyland.

“Playtech’s revenue footprint is €100m, while content that would extend the quantity if not entirely match the quality of Aristocrat’s library adds €300m, including a credible live business.”

However, the deal rests on Playtech’s sale of its financial trading division, Finalto, according to Croker.

Croker said that the Finalto sale must be approved by Playtech’s shareholders and no amendments must be made before the Aristocrat acquisition.

Playtech agreed to sell to Gopher Investments for £186.2m ($250.0m/€215.5m) in September.

Playtech had been considering divestment plans since 2019, as the company underperformed that year.

Brian Mattingley, chairman of Playtech, remains hopeful about the supplier’s potential in the global space, which he says will only increase with Aristocrat’s acquisition.

“In recent years, Playtech has successfully repositioned its world leading gambling technology and operations, expanding in strategically important regulated markets and driving major online B2B revenue growth,” said Mattingly.

“Whilst the business has made significant progress, most notably in the Americas, Aristocrats proposal provides an attractive opportunity for shareholders to accelerate Playtech’s longer-term value.”