REG - Flutter Entertainmnt - Acquisition of Sisal

Flutter EntertainmentAnnouncement

23/12/2021 07:00

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RNS Number : 5652W  Flutter Entertainment PLC  23 December 2021

 

 

23 December 2021

Flutter Entertainment plc

Acquisition of Sisal, Italy's leading online gaming operator

Flutter Entertainment plc ("Flutter" or the "Group") is pleased to announce
the acquisition of Sisal ("Sisal"), Italy's leading online gaming operator,
from CVC Capital Partners Fund VI for a consideration of €1.913bn/£1.62bn.
This acquisition fully aligns with the Group's strategy of investing to build
leadership positions in regulated markets globally. The transaction is likely
to complete during Q2 2022 and is expected to be accretive to adjusted
earnings in the first 12 months post-completion.

Sisal is a leading betting, gaming and lottery operator headquartered in
Milan. In the 12 months to December 2021(1), Sisal expects to generate EBITDA
of €248m/£211m, with 58% coming from its online offering and the remainder
coming from a combination of retail and lottery operations. Approximately 90%
of Sisal's 2021 EBITDA is generated in Italy with the balance coming from
regulated lottery operations in Turkey and Morocco. The business employs circa
2,500 people today.

The addition of Sisal to Flutter delivers several key strategic outcomes:

·    Secures a gold medal position in Italy by bringing the leading online
brand into the Flutter portfolio. The combination of Sisal with Flutter's
existing online Italian presence through PokerStars and Betfair will result in
a combined online share of 20%(2)

·    Increases the Group's exposure to an attractive, fast-growing,
regulated online market: Italy is Europe's 2(nd) largest regulated gambling
market and one that has seen online penetration grow from 10% in 2019 to
approximately 20% today. Sisal's online revenues have grown by a compound
annual rate of 34% since 2016

·    Sisal's omni-channel offering will deliver a competitive advantage to
Flutter's business, particularly given Italy's advertising restrictions and
the prevalence of cash deposits and withdrawals through retail

·    Increases Flutter's recreational customer base with the addition of
300,000(3) highly engaged online average monthly players and over 9.5m retail
customers

·    Further diversifies Flutter's product and geographical footprint and
increases the proportion of Flutter's revenue from regulated markets which in
Q3 2021 was over 91%

·    Bolsters Flutter's existing talent pool by adding a proven management
team that will continue to lead the business and who have sought to take a
leadership position in the promotion of safer gambling in Italy

Peter Jackson, Flutter Chief Executive, commented:

"I am delighted to add Sisal, Italy's leading gaming brand, to the Group as we
look to attain a gold medal position in the Italian market. For some time we
have wanted to pursue this market opportunity via an omni-channel strategy and
this acquisition will ideally position us to do so. Sisal has grown its online
presence significantly in recent years, aided by its proprietary platform and
commitment to innovation. I'm excited to see how Flutter can complement these
capabilities through our scale, differentiated products and operational
capabilities. We look forward to welcoming Francesco and the rest of the Sisal
team to Flutter in 2022."

Francesco Durante, Sisal Chief Executive, commented:

"Over the last five years, thanks to CVC's support, we have successfully
transformed Sisal into a leading digital and international gaming company.
Through our commitment to digital innovation, international expansion and
safer gambling, we have achieved a leadership position in Italy's online
gaming market and developed our global footprint by winning lottery tenders in
Morocco and Turkey. We are delighted to join Flutter and are convinced that
through its scale and operational capabilities, we will be able to further
strengthen our leadership in the markets we operate in. I look forward to
working with Peter and the team on the next chapter of Sisal history."

 

Giampiero Mazza, Managing Partner at CVC Italy commented:

"We are very proud of the success achieved by Sisal and its transformation
since our acquisition in 2016. Through heavy investment in its digital
competencies, Sisal has become Italy's leader in online gaming while also
growing its international operations. Furthermore, the Company is leading the
Italian industry in ensuring responsible and safe gaming. We want to thank
Francesco and the whole management team for their incredible dedication, focus
and ambition, and for leading this successful journey in spite of regulatory
challenges and the pandemic. Flutter is a fantastic new partner for Sisal and
we wish them the very best."

1.      Attractiveness of the Italian market to Flutter

The Italian market offers the following attractive characteristics:

·     Size: Italy is the second largest regulated gambling market in
Europe after the UK, with total estimated gross gaming revenue (GGR) in 2019
of €19bn/£16bn(4)

·     Potential for online growth due to ongoing migration from retail:

o  Whilst just 10% of total Italian GGR was generated online in 2019, the
Covid-19 pandemic has led to a material increase to around 20% over the last
two years. We expect that a sizable proportion of migrated customers are
likely to remain online as trading conditions normalise

o  Online penetration rates remain well below the UK and Australia where
online share of total gambling spend was estimated to be circa 60% and 70%
respectively in 2019

o  With good ongoing structural momentum, the Italian online market is
projected to be worth £3.6bn by 2024, equating to forecast 5-year compound
annual growth of 18%(5)

·     Strategic advantages of retail network access:

o  Omni-channel operators, such as Sisal, are capable of maximising growth
due to their retail presence and ability to engage with customers across both
channels

o  Advertising restrictions in particular have emphasised the opportunity for
omni-channel operators to acquire online customers, allowing them to leverage
their high brand awareness through having a retail presence. Since these
restrictions were introduced, large omni-channel operators have gained market
share at the expense of online-only operators

o  In addition, a significant proportion of online deposits/withdrawals are
done via the retail network, with retail staff acting as brand advocates,
providing multi-channel operators with a competitive moat around their
businesses

·     Diversified product demand:

o  In 2022(5) an estimated 95% of online revenue is expected to come from
gaming (59%) and sports betting (36%) combined, a mix that overlaps well with
Flutter's core areas of expertise

o  The majority of retail revenue is expected to be derived from gaming
machines (57%) and lottery (37%), with just 6% coming from sports betting

 

2.      Sisal - Italian market leader and key online asset

We believe that Sisal is very well-positioned to benefit from the structural
growth drivers highlighted above. Key features of the business include:

·    A leadership position today: Sisal's online market share is currently
11.9%(2). Combined with Flutter's existing assets we will reach circa 20%
share(2)

·    A market leading brand: Clear #1 brand for 'top of mind' awareness in
the Italian market, aided by a retail footprint of circa 1,700 Sisal outlets
and a further 40,000 concession points/points of sale

·    A diverse product offering: Across gaming, sports and lottery

·    Highly engaged player base: Over 300,000(3) online average monthly
players in Italy and a retail base of 9.5m customers to migrate online

·    Proprietary technology: The business operates on a fully proprietary
technology stack with a strong focus and track record in delivering product
innovation, powered by over 1,000 employees dedicated to online product
development

·    Experienced management team that will continue to lead the business

·    Scope to grow in other markets/product verticals: Lotteries have
enabled Sisal to successfully grow outside of Italy. In Turkey, its lottery
operation is projected to generate £22m EBITDA in 2021 despite only launching
in 2020. This acquisition provides Flutter with lottery capabilities for the
first time

·    Focus on sustainability: Market leading focus on ESG and safer
gambling underpinned by AI and the highest standards of industry certification

 

3.      Financials and consideration(1)

Sisal expects to report revenue (after deduction of gaming duties) in 2021 of
£590m (€694m)(6). It expects to report consolidated EBITDA(7) of £211m
(€248m), 90% of which will come from its Italian operations (online 59%,
retail 31%).

We see tangible opportunities to deliver material revenue synergies from the
acquisition of Sisal through (i) leveraging Sisal's retail channel to grow
online deposits for existing Flutter brands (PokerStars and Betfair), (ii)
enhancing Sisal's sports betting offering by utilising Flutter's pricing and
risk management capabilities and (iii) enhancing Sisal's casino product by
providing it with access to Flutter's in-house gaming content. Cost synergies
from the transaction are expected to be circa £10m, principally due to
potential procurement savings. We anticipate that revenue synergies will
exceed cost synergies over time.

The total consideration for Sisal is €1.913bn/£1.62bn, which is payable in
cash and in full on completion of the transaction. This amount includes full
repayment of all Sisal's debt upon completion. The transaction will be
financed by way of additional Flutter debt facilities, agreed with Barclays
Bank PLC. The transaction is conditional on merger control clearance and
customary gaming and foreign investment consents. Subject to these approvals,
it is expected that the transaction will complete in Q2 2022.

Ends.

 

The person responsible for arranging release of this Announcement on behalf of
Flutter is Edward Traynor, Company Secretary of Flutter.

 

Contacts:

 Investor Relations:
 David Jennings, Group Director of Investor Relations & FP&A          + 353 87 951 3560
 Ciara O'Mullane, Investor Relations                                  + 353 87 947 7862
 Liam Kealy, Investor Relations                                       + 353 87 665 2014
 Press:
 Lindsay Dunford, Corporate Communications                            + 44 79 3197 2959
 Robert Allen, Corporate Communications                               + 44 75 5444 1363
 Billy Murphy, Drury Communications                                   + 353 1 260 5000
 James Murgatroyd, Finsbury                                           + 44 20 7251 3801

( )

(1) Financial projections for FY 2021 have been provided by Sisal management
and are consistent with 10 months of actual EBITDA performance (£163m) and 2
months of projected performance (£48m). FY 2021 has been used in this release
as we believe it is a better reflection of the ongoing earnings power of the
business; 2020 performance was materially impacted by Covid-19 related retail
restrictions

(2)Online market share of gross gaming revenue in October 2021

(3 )Average number of players in the 12 months to 30 June 2021

(4) Source: ADM (Agenzia delle Dogane e dei Monopoli - Italian gaming
regulator), MDF Partners. Includes lotteries of £5bn

(5 )Source: MDF Partners

(6 )We will align Sisal's revenue definition with Flutter's (which is reported
before deduction of gaming duties) post completion and report consistent
revenue numbers accordingly.

(7 )The consolidated EBITDA figure of €248m for 2021 includes €13m
accruing to minority shareholders

(8) Gross asset value of Sisal was €1,658m as at 30 September 2021

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