With this latest acquisition, Rafi Ashkenazi has sent a message to the industry. To paraphrase Conor McGregor – he is not here to compete; he is here to take over.
Stars Group, a Canadian behemoth in the betting and games industry, has reached a deal to buy Sky Betting and Gaming (SBG) for an eye-watering $4.7 billion. The deal consists of $3.6 billion in cash with the remaining amount in stock.
The merger will establish the Stars Group as one of the world’s largest operators in its sector. The move brings together two successful businesses, joining them under the stewardship of Rafi Ashkenazi.
When CVC took a majority stake in SBG in March 2015, the consensus was that CVC would hold the investment for 3-5 years, culminating in either a public listing or sale and they have duly delivered. The last three years have seen a quadrupling of value for SBG.
Although CVC decision looks like a home run, there was some element of risk involved when they first purchased SBG. Their initial purchase price was at 15 times trailing EBITDA. CVC also inherited an existing management team. However, CVC made the right calls over the life of their investment, particularly in their decision to allow SBG management to invest in key areas – delivering a new culture under Richard Flint which has generated envy throughout the industry.
Now it is the turn of the Stars Group to see how they steer SBG. Stars have committed to retain and learn from the SBG culture as well as keep its Yorkshire base. Now, how will that culture be integrated within a large public entity is yet to be seen.
Job losses and potential closure of offices are inevitable given the $70 million in cost savings required. SBG offices in Sheffield, Rome, and Munich, in particular, look vulnerable. However, if Stars can make efficiencies in the right places, they are on track to make a return of ca. 6% on their investment straight away. Not a bad bit of business for a company of the calibre of SBG.
Being a part of one of the world’s largest international gaming businesses will no doubt help SBG in the long run – particularly as the Stars Group currently holds licenses in 18 different jurisdictions. There are also benefits for Stars having SBG in their portfolio. SBG brings a wealth of knowledge in sports betting. Additionally, SBG will have access to new, fertile ground for high revenue in Australia as well as the Betfair Australian brand, the result of heavy investment by the Stars Group in recent months. This will provide an opportunity for SBG people to work in different countries and take on significant new responsibility in the enlarged Group. However, with any sale many executives will look to cash out and leave the company.
The deal is expected to be completed by Q3 and will lead to a protracted 18-month integration phase. During this transition, it is critical that both companies do not lose sight of the biggest priority – satisfying customer needs – despite the distraction of the integration. Paddy Power Betfair lost sight of this during its recent merger losing market share to SBG and the whole industry resulting in the market value of the group falling 45 per cent from the €11.9 billion peak reached when the merger closed in February 2016.
The only question remains now will Rafi Ashkenazi’s acquiring gaze turn next to Paddy Power Betfair, cementing his legacy in one of the world’s most competitive industries? Only time will tell.
