Deal Talk #5
SPAC’s highs and lows, 888’s debt woes, Tilmann Fertitta’s Wynn move +More
Welcome to this month’s edition of E+M’s monthly newsletter Deal Talk, discussing what’s being spoken about away from the earnings announcements and analyst calls of the betting and gaming sector.
In this edition, the state of play with an all-but-dead market for SPACs and the mixed track records of those that achieved an IPO.
The recent news surrounding 888’s debt load is examined.
And, finally, a look at Tilmann Fertitta’s Wynn shareholding, asking if there might be more to it than the stated aim of investment.
SPACs – the rise and fall
The gambling sector’s relationship with SPACs was more than just a brief flirtation. But with the market now all but dead, what is the verdict on the deals that got away – and the ones that didn’t?
Dead and buried: DraftKings’ merger with Diamond Eagle Acquisition Corp, completed in April 2020, wasn’t just significant for the US gaming sector; its SPAC demerger is often cited as being one of the headline deals that helped kick off a cascade in the subsequent couple of years.
According to SPAC Analytics, in 2020 there were 248 SPAC IPOs raising $83.4bn, while in 2021 that rose to 613 or 63% of all US IPOs and worth a combined $162.5bn.
But the market turmoil in 2022 marked a turning point, with only 83 SPAC demergers going through for a total of $13.2bn.
The retreating tide has been marked by a rise in the total number of SPAC mergers that have been called off. According to recent Bloomberg analysis, 55 deals have been pulled in the year-to-date.
🟥 The number of SPAC mergers called off in 2022
After the goldrush: Following DraftKings, the gaming sector had some notable successes in the SPAC demerger race. It remains one of the more successful SPACs and, despite the share price ups and downs this year, it is still 49% ahead of its float price.
DraftKings also snapped up another gaming-related ex-SPAC demerger when it bought Golden Nugget for $1.56bn, a 51% premium to share price just previous to the announcement.
DraftKings is ahead of Inspired Entertainment whose float via a merger with Hydra Industries Acquisition Corp predated DraftKings by four years.
The remaining listed gambling-related SPAC demergers haven’t fared so well.
The most prominent, perhaps, is Rush Street Interactive, which merged with the dMY Technology SPAC at the very end of 2020. Since float, the shares have fallen over 63%.
Genius Sports, meanwhile, is down 79%, Super Group is off by 62% and the truly disastrous Lottery.com is 97% below its $10 IPO level.
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Give me just a little bit more time: This mixed picture of post-SPAC performance on the part of gaming sector-related entities doesn’t help the prospects for any SPACs still seeking a merger target or indeed the already announced deals.
Previous Deal Talks discussed how the prolonged Playtech takeover saga dealt a mortal blow to Tekkorp’s hopes of achieving its planned merger with Caliente’s CaliPlay business.
Question marks also hang over the rest. Allwyn pulled out of its planned merger with the Cohn Robbins SPAC at the last minute, citing market volatility.
Novibet has gone quiet ever since it announced in April it would be seeking a listing via a merger with the Artemis Strategic Investment Corporation. That would have valued the business at $625m.
Lastly, PlayUp is apparently still pursuing its merger with the IG Acquisition Corp. SPAC at a valuation of $350m, a level that was deemed “improbable” by one source.
Nothing but a heartache: SPACs are “tainted by their very nature,” suggested one investment banking source. “There might have been some good companies that went the SPAC merger route, but the whole SPAC thing is under a cloud now.”
“I’m skeptical about any of those remaining on the runway. I just don’t think they will happen.”
“People just wouldn't look at doing a SPAC anymore,” said another adviser. “It isn’t a credible option. It doesn't mean an IPO is easier to do than a SPAC, but the markets are very quiet generally.”
The biggest issue is, obviously, raising capital. “You just can’t raise the PIPE,” said one adviser of the private investment in public equity that accompanies almost all SPAC mergers.
Without the PIPE money, the founders of the merger target won’t get the cash they want out of any transaction. “That was what made these deals happen,” said the investment banking source. “It was a confidence game.”
“At its core, a SPAC deal is about raising a PIPE and you cannot raise a PIPE right now,” the source added.
“There is no money to be raised so you have to do a smaller deal, and you don’t have the ability to guarantee the sellers there will be any liquidity there.”
At the same time, following the raft of financial irregularities that came to light with a number of SPACs, the rules have subsequently been tightened by the SEC.
Parched: Some of the problems with SPAC listings are specific – such as the tightening of the rules dictated by the SEC – but issues around raising money are also indicative of the wider issues caused by the IPO drought.
“There is a lot of fatigue around the SPAC model generally,” said one advisor.
Add in the wider economic gloom and a SPAC “just isn’t a credible option right now.”
“Plus, public life isn’t for everyone,” they added. Quarterly reporting requirements are a burden, which some companies are “just not built for”.
“There comes a certain pressure with being listed that you have to put up with,” the advisor added.
Instead of companies seeking a route to a public listing, advisors see traffic heading in the other direction. “I can see take-privates as being the new trend,” said one.
888’s debt struggles
According to reports, the banks who helped finance 888’s William Hill buyout have been offloading debt at a discount to get it off the books.
In hock: As E+M reported yesterday, 888’s combined €332m bond sale and $75m term loan arrangement came at a price for the company’s bankers, who offloaded the junk debt at 84.5¢-87¢ on the dollar.
The deal is marginally beneficial to 888, which now has a larger percentage of its debt (63%) at a fixed interest rate versus floating rates.
But it still leaves the company attempting to service £1.8bn of debt.
One investment advisor pointed out that with the debt now syndicated and not sitting on the banks' books, “some of the pressure is off”.
However, as another source pointed out, the company would still “need to work hard” to service its debt levels.
“Debt levels are fine as we speak, but, over time, it will become a heavier rock around 888’s neck,” the source added.
The month in transactions
MGM made available a $750m revolving credit facility to majority-owned subsidiary MGM Macau, saying it reflected “confidence in the long-term growth potential of Macau” and bolstered MGM Macau’s “already strong financial position”.
Games developer Raw iGaming acquired the casual games studio Spigo for an undisclosed sum.
Israeli-based data provider LSports acquired Poland-based data provider Statscore for “several million euros”, according to the company.
AGS shareholder Apollo sold its entire 22% holding via a secondary offering, ending long-standing ownership that dated back to 2013.
Lottomatica acquired 100% of Italian-facing sports-betting and iCasino operator BetFlag for €310m.
Bally’s has secured $500m of backing from an unnamed real estate private equity firm to build its Chicago casino.
Tabcorp Holdings is hoping to raise $290m of new debt to pay off debts and fund potential M&A opportunities.
The apparel to soon-to-be sports-betting business Fanatics has been valued at $31bn after raising $700m from investors for potential M&A.
IMG Arena has snapped up virtual sports provider Leap Gaming in a deal that values the business at €14m.
Tilmann’s Wynn move
In early November it emerged that Tilmann Fetitta was now a significant shareholder in Wynn Resorts.
Fertitta, who himself has more than dabbled with SPACs, most obviously via Golden Nugget, ignited speculation with his 6% stake in Wynn, placing him just behind Elaine Wynn as the company’s largest single shareholder.
According to one consultant, Fertitta is a “maverick investor” who can see long-term value, but, as it stands, he has already seen an 18% return since his investment became public knowledge.
🏧 Wynn Resorts share price since Tilmann Fertitta bought a 6% stake
Smoke/fire: Fertitta himself has said his investment is just that, but, as the consultant noted, “this is how it starts”.
“He did this with the restaurant business (Landry’s). He buys a small stake and then buys some more. He has the wherewithal to do that and, if history is any indicator, he’s up to something.”
What we’re reading
Exotics: Private equity seeks out liquidity as deals ebb.
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