Private Equity Goes After Online Gambling


December 12, 2014

Sky’s announcement to sell its bookmaker division Sky Bet was one of the mega deals of Thursday. It is reported that private equity firm CVC Capital Partners bought Sky’s controlling stake of Sky Bet for £800 million. The deal is another example of private equity’s current thirst for online gambling.


In the recent months, there’s been a flurry of deals for betting companies by private equity firms and the industry looks to be one of the hottest investment ventures. Although Sky is selling off the controlling stake, it is understood the company will still hold onto a 20% stake of the division.


Details of the Deal
According to The Telegraph, the deal s worth £800 million, with Sky receiving £600 million in cash and “further £120 million at a later stage”. It is also understood that Sky will reinvest around £80 million in Sky Bet, meaning the company will continue to own 20% of the company.


Furthermore, The Guardian reported the £120 million payment further down the line depends on how well Sky Bet will perform. Experts consider it to be a safety net for the private equity company, as online gambling business deals haven’t always gone according to plan.


Jeremy Darroch, chief executive of Sky Bet, was quoted in The Guardian saying, “This transaction will allow us to focus further on substantial growth opportunities in our core-international pay-TV business, while realising significant value for our shareholders”.


Sky’s Restructuring Plan
Analysts believe the move is an opportunity for Sky to restructure it’s business and perhaps even venture into the so-called quad play, which is the combination of offering customers integrated packages of TV, broadband, home telephone and mobile phone services.


Despite this, an Investec analyst, Steve Liechti, argued in The Guardian, the company might not be interested in acquiring a mobile phone company. “We argue that this clears the decks ahead of further expected telco/convergence driven consolidation in the UK and Europe. Sky looks slightly ‘out in the cold’ from a mobile/quad play perspective currently, in our view,” he told the newspaper.


Citigroup analysts agree on the notion and told This Is Money that, “Sky Bet has done well but potentially would require more investment to take it further, something Sky is unlikely to prioritise”. Nonetheless, speculation remains strong, as Sky’s biggest UK rival, the BT Group, has announced it is in talks with acquiring O2 or EE.


Plenty of Activity Recently
Sky has been active in recent years regarding the restructuring of the business. Last month, the company changed its official name by dropping the words ‘British’ and ‘Broadcasting’, and went for a simple Sky instead. It also completed the takeover of Sky Deutschland and Sky Italia in a deal worth £7 billion.


Sky Bet division generated net revenue of £182 million in the period before June and its profits before tax stood at £50 million (This Is Money).The Sky Bet division, sold in this deal to CVC Capital Partners, was launched in 2001 and it is currently one of UK’s largest online betting companies.


The division is focused on sports betting as well as running casino gaming operations. Sky Vegas, Sky Casino, as well as Sky Poker and Sky Bingo are all part of the franchise.


Furthermore, Sky best is an official sponsor of the Football League in the UK. In fact, the company rescued the league as it failed to find a sponsorship last year. According to This Is Money, Sky Bet will continue operating from its current headquarters in Leeds.  Mister Darroch was quoted in the papers saying, “In the last ten years, we have successfully grown Sky Bet from a start-up to one of the leading online betting and gaming companies in the UK”.


Interest in Online Gambling
For the private equity firm, CVC Capital Partners, the Sky deal isn’t first in the field. Last year, the firm proposed a £1 billion bid to buy the publicly listed Betfair, but nothing happened in the end. The Europe’s largest buyout firm also owns a stake in Formula One and it has previously invested in the betting and gaming sector with companies like IG Group and William Hill.


Analysts were quick to point out that CVC Capital Partners’ offer to Sky was a lucrative one. The Financial Times analysis commented on the deal saying it, “represents a 47 per cent premium to the valuation for the broadcaster’s own shares. It is also 40 per cent ahead of the ratio for Betfair.


Gerald Corbett, pugilistic chairman of the sports gambling group, repelled a lowball bid from CVC 18 months ago. Betfair thumbed its nose at the buyout boys today by announcing a £200m special dividend. The private equity firm has doused the torch it was carrying by taking control of a similar business more expensively.”


Rob Lucas, CVC Capital Partners’ managing partner, told The Telegraph, “We are delighted to have agreed to acquire a controlling stake in Sky Bet. The partnership between CVC and Sky will provide a strong platform to support SkyBet’s ongoing success at this exciting point in its development.”


Not Just CVC
Furthermore, CVC Capital Partners isn’t the only private equity firm looking into large investments in the gambling world. Online gambling companies have attracted plenty of attention in the recent months and there are many ongoing negations.


The world’s largest private equity firm, Blackstone Group, was involved in the buyout of PokerStars, the world’s largest online poker company. According to Forbes, Blackstone had to make “a $1 billion investment, its largest commitment ever” for the deal to go through.


Private equity firms Apollo Global management and TPG have also been involved in online gambling companies in recent months. Furthermore, the European private equity firm, Permira, was also looking to make a deal for 888 Holding, an online gambling operator, but so far there haven’t been any new developments on this deal. But still, the number of deals done, including the Sky Bet deal, is highlighting how private equity is looking at these new markets and finding room to shed off excess capital.


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