Sportradar is raising $505 million to finance a potential acquisition.
The raise was revealed last week by Fitch Ratings, who gave Sportradar debt a B+ credit rating – a rating sometimes known as “speculative.“
The data giant is also looking to secure a $129 million revolving credit facility.
What’s the money for?
Fitch noted that Sportradar had a “track record of successfully securing bolt-on acquisitions.” And the agency said it assumed $353 million was “being raised for a specific [M&A] target.”
Later on in the report, Fitch added:
“The [loans] equip Sportradar with sufficient funds to pursue inorganic growth via M&A as well as providing security for eventual short-term funding requirements.”
S&P Ratings said in a similar note it didn’t know the identity of the target, but there were “significant revenue synergies.” S&P said the company had an estimated annual EBITDA of $23-29 million.
What would Sportradar buy?
Sportradar purchased a sports betting platform, Optima, last year. Although there have been some teething problems there, it’s unlikely they are buying another one already.
Another option could be a casino platform, to make the company more of a one-stop shop across online gambling. Remember, US online casino is more profitable than sports betting, and could be equally large in the long term.
Sportradar could also be looking at sports analytics firms to improve its US sports trading arm. Second Spectrum was mooted by sources as a candidate.
Another option could be an acquisition outside of betting and more focused on sports media and OTT streaming. The Sportradar media team is relatively small, but the global OTT streaming market was worth $104.11 billion in 2019 and is growing rapidly.
What next for Sportradar?
The company has been linked with an IPO in recent months. An acquisition could help round out an investment narrative – think DraftKings and SBTech.
The format of the loan however, suggests Sportradar may be looking at a traditional IPO rather than a SPAC. A SPAC is a quick way for a company to raise money from the public markets, when it can’t do it privately.
So if Sportradar can acquire its target and IPO without issuing equity to a SPAC, that would be the smart way forward. Sportradar did not respond to an LSR request for comment.
What else did we learn from the Fitch report?
- Sportradar EBITDA in 2021 will be an estimated $86 million (another reason it is unlikely to list via SPAC.)
- The data provider has EBITDA margins below 20%, driven by expensive audio-visual (AV) sports rights.
- US customers totaled 6% of revenue in 2019.
- Sportradar took a $42 million impairment on the value of its data distribution deal with the NBA. The deal was signed back in 2016 and saw Sportradar pay $250 million over six years, according to Forbes.
- Fitch did not explain why the contract value has been written down.
- Revenue in the first half of the year to June 2020 was down 1.0%, amid COVID-19, with EBITDA down 11%.