Posted by Harry Kane on Friday, December 10, 2021
Since the explosion of the UK’s iGaming market in 2018, we’ve seen the industry continually shaped and altered by a broad range of high-profile mergers and acquisitions. William Hill has been at the heart of this evolution, having been one of the first UK operators to make waves on the other side of the Atlantic.
Back in September 2021, 888 agreed to buy William Hill’s international interests (outside of the US) for a cool £2.2 billion ($3 billion). However, sweeping economic and regulatory changes have impacted directly on enterprise value of these assets, meaning that 888 will secure them for considerably less.
We’ll explore the history of the deal below, while asking how the acquisition will impact on all parties and the market as a whole. So, let’s get into it!
Then and Now – Appraising the Deal Between Caesars and 888
The story can be traced back to early 2021, when the Las Vegas-based casino brand Caesars first procured William Hill in a blockbusting $4 billion deal.
In September, however, the US behemoth agreed to offload all of William Hill’s non-US assets (including those in the UK). 888 was the successful bidder, with an initial fee of £2.2 billion ($3 billion) agreed between the two parties.
The purchase was initially heralded as a game-changer for both the brand and the industry, as it represented 888’s largest such acquisition since listing in London nearly 20 years ago. Upon completion, 888 will earn access to William Hill’s two million active UK customers, creating one of the largest and most influential betting brands in Europe.
Perhaps more interestingly, 888 will also acquire the 1,400 high street betting shops that currently belong to William Hill. These are spread nationwide, while their addition represents a huge departure for a brand that has historically operated purely online.
According to 888’s CEO Itai Pazner, the brand has absolutely no intention of offloading the retail stores and retaining a purely online focus. In fact, stores seem to be a key factor behind 888’s decision to buy, especially with William Hill’s outlets profitable, well-run and capable of creating a new revenue stream for their new owners.
Certainly, these stores have survived a wider cull in the wake of the FOBT cap in 2019, with William Hill having done much of the work to retain their profitability and optimise their existing enterprise value.
Despite recent changes to the enterprise valuation of William Hill’s non-US assets (we’ll have more on this below), the deal continues at place and makes perfect sense from the perspective of 888. This will surely show on 888’s balance sheet in the aftermath of the conclusion, with the deal expected to be completed and ratified by the end of June 2022.
What Has Changed in the Deal and What Does it Mean?
Since the initial deal was agreed in September, significant changes have occurred both in the iGaming regulatory space and the wider global economy.
In terms of the former, William Hill has recently found itself subject to an ongoing licensing review by the UK Gambling Commission (UKGC). This followed on from a number of concerns that were raised by the regulator with regards to social responsibility and anti-money laundering, with the brand having previously been sanctioned heavily in 2018.
This has created further concern about the value of William Hill’s UK assets, with both 888 and Caesars having recognised this as part of their ongoing discussions and negotiations.
Beyond this, the soaring rate of inflation in the UK and throughout Europe is placing a significant squeeze on households and businesses alike. With inflation also increasing at a disproportionate rate to real earnings, the enterprise value of William Hill’s UK and European assets has weakened slightly.
More specifically, the companies involved in the deal have agreed to revise the total enterprise asset value down from the initial sum of £2.2 billion. The assets in question are now valued at between £1.95 billion and 2.05 billion, creating a significant depreciation that sweetens the deal further from an 888 perspective.
But what does this mean in pure cash terms? Well, instead of having to pay an initial cash consideration of £834.9 million as originally planned, 888 will now be asked to commit around 30% less at just £585 million. This is a significant amount, so it’s little wonder that the news has been welcomed by shareholders and investors alike.
The Last Word
Certainly, the news was particularly well-received in the UK capital, where shares in the London-listed 888 increased by nearly 30% after the revised asset value was announced.
The reason for this is simple; as the brand are accessing some significant (and not to mention unexpected) cash savings while being required to raise considerably less capital to help fund the purchase. This certainly minimises the risk of the deal being scuppered or the cash advance being too much to raise.
In addition to this and creating a new stream of offline gambling income, 888 will also be able to add to its considerable online portfolio with the acquisition. It also plans to issue up to 70.8 million new shares as it continues to pursue an aggressive growth plan, with this expected to be worth approximately £136 million in pound terms.
Previously, the brand had aimed to raise £500 million, but this is no longer required given the new asset valuation and the way in which economic and regulatory shifts have impacted on the terms of the deal.
As for the market as a whole, this replaces one household name with another on UK high streets, while fortifying an 888 brand that’s already one of the biggest online. There’s no doubt that the deal changes the iGaming landscape on these shores, while shifting the balance of power in favour of 888.