Who Is Going To Buy Italy’s Second Largest Gaming Company?

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Italian gaming company Sisal sold

The No. 2 gaming company in Italy, Sisal, is being sold by its private equity owners: Apax, Permira and Clessidra. The three bidders left standing in the corporate battle to buy Sisal are all private equity companies: Bain Capital, Apollo and CVC.

All three have been given rights to see financial information so that they can perform their due diligence before formulating a binding offer on May 15.

Sisal has a large sports betting business

Sisal has a large presence in both the live and online sports betting markets.

Online revenue as a whole generated 45.6 percent of its total revenue in 2015, according to its latest financial report.

Sports betting contributed substantially to Sisal’s revenues, with the Italian market growing by 24.7 percent compared with 2014. The March revenue figures issued by regulator AAMS show Sisal ranked fourth for online sports betting with monthly revenue of €23.4 million ($26.8 million).

The top three sports betting operators in the market, by revenue, are Bet365, Eurobet and William Hill. The recently merged SNAI-Cogetech, which is Italy’s largest gaming company, ranks fifth, just behind Sisal.

Sisal may be the No. 1 investment

A peer comparison report on the two Italian leaders by rating agency Moody’s, suggested that Sisal represented the better investment.

“While SNAI’s revenues have surpassed Sisal’s following its acquisition of Cogemat and it has gained leadership positions in retail sport and horse betting, Sisal will remain more profitable mainly due to its more favourable product mix.”

Sisal’s sale price is likely to be reflective of this sentiment. Its 2015 revenues of €787 million ($901 million), indicate a price well over €1 billion ($1.15 billion).

In 2014 the owners prepared for an initial public offering (IPO), at a price of €645 million to €790 million ($880 million-$1.08 billion). A market slump led to the sale being cancelled and the current situation, where the company is going to remain private.

CVC and Apollo are big investors in gaming

Two of the three bidders are already well-known in the gaming world.

CVC owns SkyBet, and a few days ago, it took a majority stake in German gaming company Tipico. Tipico was one of the operators tentatively awarded a sports betting license in the aborted process authorized by the German Interstate Treaty on Gambling.

CVC is a former owner of William Hill, which it bought in 1999, and exited through an IPO in 2002.

In 2008, Apollo, together with another fund, TPG, invested $6 billion in Caesars Entertainment. After the group split, Caesars Entertainment Operating Company (CEOC) declared voluntary bankruptcy; after the various court cases associated with the filing, the rest of the original group (Caesars Acquisition Company) may be dragged into bankruptcy proceedings itself.

That gaming investment didn’t pay off for Apollo, but it retains a compelling interest in the sector. Last year it paid $375 million to buy Cadillac Jack from Amaya.

Bain Capital may be the odd one out. Its founder and former presidential candidate, Mitt Romney, has come out strongly against gambling and particularly online gambling.

Through an associated company, Bain has had investments in gambling in the past, but its current list of investments does not include any gaming operators.

CVC is probably the most interesting potential owner. It would be possible for CVC to see synergistic benefits with its existing Skybet operation. Skybet does not currently have a license for the Italian market, one of the largest gaming markets in the world.

Where are the bids from other gaming companies?

The other interesting factor about this corporate deal is that the bidders are all private equity investors and not gaming companies.

What about 888?

Last year, 888 Holdings failed to buy bwin.party, and Playtech failed to get regulatory approval for its bid to buy Plus500. Both companies have the cash and ambition for further acquisitions, but neither looks to have seriously considered Sisal.

888 has a license in the Italian market, and began operations late last year. It has had some immediate success in the sports betting market, ranked tenth based on the March revenue figures of €5.4 million.

On the other hand, since CEO David Baazov put Amaya in play by announcing that he was putting together a bid for the company, 888 may have ambitions in that direction.

There is a solid argument for 888 to take over Amaya based on the synergies available in sports betting and online poker. 888 is the No. 2 online poker operator behind Amaya’s PokerStars.

Why no one else?

Playtech may not have much interest in Sisal because it is a company which generates most of its revenues from B2C activities, whereas Playtech is much more of a B2B player.

One of the reasons why private equity companies are at the forefront in the Sisal acquisition is that Sisal makes a third of its EBITDA revenues from its payments and services business. It has over 44,000 retail outlets, which is a big land-based footprint. Online gaming operators may have little interest in such a mixed business.

Two of the largest UK betting shop businesses — Ladbrokes and Gala Coral — are currently merging, so they presumably have no time to spend looking at an Italian business. The other big UK high street operator, William Hill, failed in its own bid to acquire 888 last year. It clearly doesn’t see Sisal as much of a consolation. Perhaps it too is eyeing Amaya.