Deal Talk #2
Catena Media’s strategic review, the month in transactions, where next for gaming SPACs? +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 issue:
Catena Media faces a decision over its future.
Lottery.com’s journey towards oblivion.
A rundown of the status of betting and gaming-related SPACs.
Catena Media’s strategic review
In early August, the Stockholm-listed super affiliate expanded the scope of its strategic review to include its entire European operation alongside its financial affiliate business. This followed the news in May that Catena has “received enquiries” about its AskGamblers and Ask Traders brands.
Roll up, roll up: The potential unbundling of Catena’s European empire would represent a reverse from the previous policy pre-2018 of rolling up a host of smaller gaming-focused affiliate businesses.
Keeping score: E+M’s list of deals runs to at least 35 in the years between November 2014 and June 2018 of mainly European-facing gaming affiliates.
Pop the question: AskGamblers was one of the biggest deals when Catena paid €15m in April 2016.
Rough: However, sources suggest Catena is suffering from an inability/unwillingness to properly integrate its acquired businesses. “It didn’t manage to squeeze the value of the businesses it bought,” commented one.
Same old story: Another source suggested Catena’s previous management “was good on M&A; but they weren’t strong operationally”. “It’s spaghetti code,” commented another.
Tough: Meanwhile, the European backdrop – regulatory issues in Sweden, the UK, Germany and the Netherlands, for instance – have made life as tough (if not worse) for gaming affiliates as for operators. On the Q2 earnings call, CEO Michael Daly suggested the European business was “feeling the macro impact more”.
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Catena in the US
Play it as it lays: It was another acquisition from its roll-up period, the deal to buy PlayNJ and related assets in December 2016 for up to $45m, that has arguably been the most consequential, giving Catena the platform for its current US-focused strategy.
The PlayNJ assets, including the well-regarded LegalSportsReport.com, have become the cornerstone of the business, achieving revenues in Q2 of €14.9m.
It has since bought lineups.com and the assets of i15 Media (from one of the founders of PlayNJ).
However, state opening delays and other factors mean hopes of the US business achieving $100m in LTM revenues have been pushed back to H1 2023.
Burns after reading: It is the uneasy balancing act between a growing US business and a moribund European arm that lays behind the strategic rethink being undertaken, according to sources, by Oakvale Capital.
The only one I know: “Investors will want a pure-play US-focused business,” suggests one corporate advisor who added that the domicile was a lesser factor.
Off the pace: Notably, the Catena Media valuation has fallen behind both long-standing rival – and also Stockholm-listed – Better Collective, as well as the more recently US-listed Gambling.com.
Old world: Investors “maybe have the sense” that the older European business of Catena is “not that exciting”.
Gaming affiliates P/E ratios
🎯Better Collective – 15x
🚀Gambling.com – 43x
😞Catena Media – 8.4x
Dual purpose: A sale of all of the European businesses would simplify Catena’s focus while also enabling it to pay down some of its debt load. As of the end of Q2, it had €55m of floating rate bonds outstanding, a €16.7m term loan and a €10m revolver.
“If you have assets that aren’t helping your valuation or your share price and neither is the debt you are carrying then why don’t you offload them?” suggested one source.
It would effectively be a two-in-one: “Reduce your debt and offload lower-quality businesses.”
Over to you: Oakvale now faces the problem of finding a buyer from a reasonably short list of potentials, whether listed or private. “The circle is really small,” in the words of one source.
“What is under-appreciated is that there are no buyers for European affiliate businesses,” says one affiliate sector insider. “Some of XL’s Finnish assets have been up for sale as well, and they have yet to be bought”.
Damned if you do: AskGamblers generates a sizable amount of its revenues from gray markets – and could do more, but Catena’s US interests have arguably made it more squeamish on that point.
“They have their hands tied behind their back as a public company with a US presence,” says one source.
“Is it a turnaround opportunity? I have to say yes,” says another. “If it was a player with a higher risk appetite, with access to those assets, what would they be able to do?”
More than just scraps: “Catena left a lot of value on the table with all these assets, because of the speed with which they rolled them up,” says one source. “They just weren't able to realize the synergies that were originally identified.”
Another pointed out potential buyers would “back their own abilities”. “Everyone thinks they can do something better than someone else,” adds one industry figure. “So maybe someone might feel they can improve the business they were buying.”
👀On the Gambling.com earnings call, CEO Charles Gillespie said: “We still have a preference for US M&A, but we wouldn’t be doing our job if we didn’t also consider the attractive European M&A targets that are out there.”
The future for Catena
Up sticks: Despite the obvious expense and organizational hurdles of the listing in Stockholm and attempting to list again in New York, the advantages would still be attractive.
“If Catena were US-listed they would have very deep pockets,” the source suggested. “They could turn around and pick up some really good assets.”
Get out stakes: “And maybe there are a quorum of shareholders who just want a US listing to get out at a much higher multiple,” they added.
Still, there are unresolved issues around the admitted reliance on social casino in the US, the potential for a slowing rollout of sports-betting and the lack of progress on further iCasino liberalization.
The month in transactions
Eastern promise: Entain bought up a 75% stake in Croatian operator SuperSport from EMMA Capital and announced a new JV with the firm to be called Entain CEE to focus on central and Eastern Europe.
AGS and Inspired Entertainment called a halt to their talks about a rumored $370m takeover bid. Analysts suggest both firms are more likely than not to be involved in further M&A activity over time.
Golden Entertainment gets a total of $260m from the sale of the opco and propco elements of the Rocky Gap property in Maryland to, respectively, Century Casinos and VICI.
Livescore, the operators behind LiveScore Bet and Virgin Bet, raised $50m from Switzerland-based media group Ringier for a £500m valuation.
Kambi bought the producer of sports-betting front-ends Shape Games for €38.5m, rising to €78.1m via an earnout in an all-cash deal.
Decline and fall – Lottery.com
One-way ticket: As detailed in yesterday’s newsletter, the short but eventful listed life of Lottery.com appears to be nearing some kind of terminal stage after the Term Sheet for a convertible loan of $2.5m and another $50m of follow-in capital came with the stipulation that four board members, including founder Tony DiMatteo, resign.
Lottery.com floated via a merger within the Trident Acquisition SPAC less than a year ago with an enterprise value of $526m. As of yesterday it was worth less than $17m.
The last available earnings statement is from Q1 when it said revenues rose to $21.2m.
However, following accounting irregularities in late June, the situation for the company has gone from bad to worse to abysmal.
A bad look: One source suggested, before the latest boardroom ructions, that Lottery.com had the look of scandal about it. “There are too many things like that that have happened for the SEC not to say, ‘this is shady business’,” they suggested.
The source noted that the Trident Acquisition SPAC was “initially designed to invest in oil and gas and at the 11th hour they stumbled upon Lottery.com”.
Anatomy of a (financial) scandal
June 30: The company reveals via an SEC filing an investigation by outside counsel has revealed instances of “non-compliance with state and federal laws concerning the state in which tickets are procured as well as order fulfilment”. The board immediately sacks CFO Ryan Dickinson and Harry Dhaliwal takes over as interim CFO.
July 11: Chief revenue officer Matthew Clemenson also gets the boot after an internal review has uncovers a $30m overstatement of cash balances.
July 20: Auditors at Armanino say that financial statements for the year ended December 31, 2021, and the unaudited financial statements for the quarter ended March 31, 2022 “should no longer be relied upon”.
July 21: Founder and CEO Tony DiMatteo resigns as CEO but remains on the board.
July 28: Company admits it “does not have sufficient funds” for ongoing operations and says it owes employees $425,000. If it does not raise new funds, the company adds, “there is substantial doubt” about its ability to “continue as a going concern”.
August 17: Company admits it is in breach of Nasdaq rules due to problems with issuing its Q2 earnings. Says it plans to file its 10-Q “as soon as practicably possible”.
August 24: Company says it is not in compliance with Nasdaq rules over the requirement to maintain a price about $1 a share.
September 6: The company signs a Term Sheet with an entity called Woodford Eurasia Assets Ltd for the provision of a $2.5m convertible loan and “expansion capital” of $50m. The Term Sheet calls for the resignation of four board members, including Tony DiMatteo. The resignations occurred on September 2.
September 9: The company informs Nasdaq it is no longer in compliance with listing rules about the number of independent directors.
Where now for gaming SPACs?
And then there were three: The outstanding possible betting and gaming SPACs situations are now at various stages of progress with Allwyn being the one most likely to succeed in getting to actually list.
(HEADING 4) Allwyn/Cohn Robbins
Ducks in a row: Following the news last week on Camelot ending its appeal over the awarding of the UK national lottery license, the shareholders of the Cohn Robbins SPAC overwhelmingly voted in favor of the deal on Friday.
(HEADING 4) CaliPlay/Tekkorp
No hay trato: That leaves two where the future is far less certain. As was detailed in last month’s Deal Talk, the chances of the planned Tekkorp de-SPAC via a deal with Playtech and Caliente/CaliPlay appears to have turned to dust after Playtech called a halt to talks.
(HEADING 4) Novibet/Artemis
In the hunt: The final one is the deal that would bring Novibet to market. Announced in late March, the company said it would be merging with the Artemis Strategic Investment Corporation SPAC and list on the Nasdaq at a valuation of $625m. However, since then the news has gone quiet. As one source said of the deal, “it’s not a dripping roast”.
(HEADING 4) Over and out
A rat trap: Whatever the reasons – and there are many – it is safe to say the SPAC boom is over. Sources point out that the calculations around a SPAC were about raising PIPE money. “That disappeared first,” says one source.
“Then the redemptions happened and ultimately you end up in a situation where you have a listed shell that becomes desperate.”
To make things worse for the SPACs, off the back of the scandals arising from companies coming to market with not enough due diligence completed, the SEC then brought in tighter rules.
“It’s two edges of the same sword,” says one source. “The SEC brought in the new SPAC regulations, which made it much harder to bring forward the targets, and so people aren’t listing anything.”
(HEADING 4) Further SPAC reading
It could be worse: SPAC investors throw out Trump's merger plan.
(HEADING 4) Of note