Scott Longley – Ghost Men: CVC Capital nets a hattrick of industry buyouts….

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Scott Longley

Having agreed to acquire Italian bookmaker Sisal for €1 billion, private equity firm CVC Capital Partners acquires its third gambling operator in less than two years. Having spent + €3 billion on European betting operators, Scott Longley  gauges the impact and motives for this PE giant extending its influence within the sector

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The latest acquisition by private equity house CVC of Italian gambling giant Sisal for €1bn makes it one of the biggest investors in the gambling space but doesn’t necessarily mean a European gaming empire is being planned.

CVC now has three big names nestling under its corporate umbrella having previously bought up majority interests in Tipico and Sky Bet and gives it prominent market positions in two of the biggest regulated markets in the UK and Italy and perhaps the biggest potential yet-to-regulate market in Germany.

There is no indication from CVC that its recent buyouts are anything more than individual transactions that happen to be within the same sector. The press releases for the two most recent deals – Tipico in April and now Sisal – make mention of the Sky Bet majority buyout, but they also give a nod to CVC’s previous ownership of William Hill and point out merely that CVC has a “strong track record” in strategic gaming investments.

That won’t stop the industry speculating about CVC’s intentions and putting two and two together – or more to the point, putting the £600m shelled out for 80% of Sky together with the rumoured €1.1/€1.5bn for the unspecified percentage stake in Tipico and now the €1bn for the whole of Sisal. But the differences between the three businesses – particularly when it comes to the most recent acquisition – are arguably greater than their similarities.

Sisal is largely a gaming machine and lottery business. Of its total revenues of €787m in 2015, €368m came from slot machines and VLTs and further €39m came from lottery products (including the popular SuperEnalotto product). Of the rest, €137m came from services and product revenue – including revenues from the company’s Sisalpay payments arm – and €78m came from point of sale revenues, including phone cards. A total of €108m was due to the betting shops and sports pools products and €47.4m came from online gaming.

Sisal is a business of many moving parts and it remains very much a land-based retail gaming company, with over 45,000 points of sale throughout Italy, from slot halls and betting shops to a huge affiliate network of corners. In 2015 it made an EBITDA profit of €182.3m but after depreciation and amortisation and other impairments totalling €129m and finance charges on the company €1bn-plus debt of €84m, the company slumped to a pre-tax loss of €32.3m.

That situation was reversed in the first quarter of 2016 as the company plumped itself up for sale, with total revenues in the three months to March almost static at €192.4m but with pre-tax profits rising to €6m. This improved positon came despite the imposition of high taxes on gaming machines (from 13% to 17.5%) that came into force on 1 January.

Where there is more of a fit with CVC’s other acquisitions is with the online gaming and sports-betting operations. While the first of these saw first-quarter revenues fall slightly to €6.2m from €6.6m, the latter did much better with fixed-odds income rising 22% to €28m on the back of both rising volumes and improved margins.

Tipico of an iceberg

What we don’t know for certain is what the state of Tipico’s profit and loss looks like. Indeed, we can’t even be sure of how much CVC have paid for their majority stake, or indeed what that stake amounts to. According to the reports at the time of the sale, the price could have been anywhere between €1bn and €1.5bn, and revenues were in the region of €500m.

We know that the business runs over 1,000 betting shops throughout Germany and also runs online sports-betting operations, and because of the somewhat confused nature of Germany’s gambling laws, we also know that Tipico (like others in the German sports-betting arena) likely pays taxes on these revenues despite sports-betting, for now, remaining unregulated.

It is the state of regulatory flux that likely both explains the lack of information divulged about the sale and also points to both the threat and opportunity inherent in the acquisition. The tortured progress of online regulation in Germany (we should certainly hesitate in calling it a liberalisation) means it would be a brave organisation which would bet anything on progress being made any time soon, or indeed what that progress might look like.

As it stands, because of its land-based presence and its substantial marketing ties with football giant Bayern Munich, Tipico looks likely to be one of the winners should the regulatory pieces fall into place. But until we know the shape of any regulation – and crucially the tax regime – then we cannot know for certain who will win out from a regulated online market in the country.

Sky’s the limit

Of the three acquisitions, it is Sky Bet which optically is the most successful to date. The Leeds-based company has been hugely successful in recent years in cementing itself among the top five or six UK-facing operators, and that is reflected in the price paid by CVC, which at 15 times EBITDA is the top end of gambling-related valuations.

In its last year under the ownership of (the then) BskyB, Sky Bet achieved revenues in the year to June 2014 of €183m, almost wholly in the UK. It is known the company has ambitions to expand its geographical footprint, and maybe coincidentally it is Germany and Italy which are the prime targets given ex-parent and 20% shareholder Sky’s presence in the PayTV markets in both territories.

This is far from saying there are any synergies across the three companies. More likely CVC will let each company thrive (or not) separately – at least for now – and potentially look at further acquisitions in the European gaming space, both outside of and within the territories where they now have bridgeheads.

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