On Friday, Betmakers Technology Group Ltd (ASX: BET) disclosed a proposal to acquire the Tabcorp Holdings Limited (ASX: TAB) Wagering & Media business.
Since the announcement, the Betmarkers share price has fallen 26% to $1.13 while Tabcorp’s share price has remained relatively steady.
BET share price
The offer
The Betmakers board has proposed an indicative non-binding offer of $4.0 billion for the Wagering & Media business.
Existing Tabcorp shareholders would receive $1.0 billion in cash, which Betmakers would fund through debt financing. The remaining $3.0 billion would be funded through the issue of Betmakers shares.
Upon conclusion of the acquisition, Tabcorp shareholders would hold a 65% interest in the combined Betmakers and Tabcorp Wagering and Media entity.
The competing bids
The board of Tabcorp has previously received offers from two potential suitors.
The first is from listed international sports betting company Entain PLC (LON: ENT). Entain has offered a non-binding indicative cash proposal of $3.5 billion for the acquisition of Tabcorp’s Wagering & Media business.
The second is from private equity outfit Apollo Management, which has proposed two non-binding offers to the Tabcorp board. The first is an all-cash offer to acquire both the Wagering & Media business and Gaming Services business for a combined value of $4.0 billion. Alternatively, Apollo has matched Entain’s offer of $3.5 billion for just the Wagering & Media business.
The verdict
With Betmarkers offer, the starting field has been widened to three. Tabcorp’s board has succeeded in drumming up competition for its Wagering & Media arm, which should result in the best outcome for shareholders.
The all-cash bids from Entain and Apollo will be attractive to Tabcorp as it means shareholders need not concern themselves with the performance of Wagering & Media business post-sale.
Conversely, opting for the Betmakers offer results in shareholders relying on the acquirer to turn around the underperforming division. Additionally, Tabcorp has the unenviable task of valuing Betmakers shares, which have been volatile over the past 3 months.
In the most recent quarterly report, Betmakers received receipts from customers of $5.2 million. Annualising this number produces full-year sales of $20.8 million.
The market capitalisation of the company is currently $928 million, meaning Betmakers trades on a sales multiple of 44. Given the growth prospects of Betmakers backend software does this justify such a lofty valuation? It may, but a lot of future growth is factored into the price.
I think Betmakers is at long odds (unlikely) to win the approval from the Tabcorp board provided the $4 billion offer from Apollo remains on the table.
For more ASX growth shares ideas, check out the three reasons I like EROAD (ASX: ERD) shares.
