Moving into Italy in a big way, Flutter Entertainment bought igaming firm Snaitech on September 16 for €2.3 billion (US$2.6 billion). The deal is expected to be immediately accretive to Flutter’s earnings per share and will give the company a 30 percent share of the Italian market.
A large segment of the purchase price went to reimburse Snaitech debtor Playtech. The latter will return most of the money to its shareholders via a special dividend valued by Jefferies Equity Research analyst James Wheatcroft at £6.27 per share.
In addition to enjoying a plurality of the Italian market, where it already owns Sisal, Flutter will deploy a multi-brand strategy to exploit it, said the analyst. The deal is expected to close in early 2025.
When it does, Flutter anticipates 70 million euros in cost synergies, which include integration of technology, game content, and third-party procurement. “The transaction is also expected to generate (unquantified) incremental revenue synergies (access to Flutter Edge, with risk pricing and igaming content) and €10m capex synergies,” penned Wheatcroft.
Flutter’s leverage for early 2024 was 2.6 times cash flow. Wheatcroft expects that to ramp up following the Snaitech deal, then decline rapidly.
In a September 17 investor note, Wheatcroft broke down the other components of the deal. He noted that the purchase from Playtech “represents a substantial premium” to that company’s valuation, which he pegged at 5.6 times cash flow. The special dividend will be a 16.5 percent premium to the Playtech share price.
Playtech management will collect 100 million euros in bonuses, with another 34 million set aside for Snaitech leadership.
Putting the sale in context, Wheatcroft pointed out that Playtech bought Snaitech in 2018 for 846 million euros and that Snaitech had generated 256 million euros in 2023 cash flow. This put the sale price at nine times cash flow.
Divested of Snaitech, Playtech will retain a business-to-business division, a cash-flow-negative consumer-oriented business, and a 30.8 percent stake in Caliplay.”Beyond the transaction, a new Playtech Transformation Plan will be implemented to align management with the strategy of delivering further significant cash returns to shareholders,” Wheatcroft wrote.
He added that Flutter leadership “remains committed” to medium-term indebtedness of twice to 2.5 times cash flow. According to Reuters, the sale will “leave Playtech to focus on its operations as a business-to-business software provider.”
The acquisition follows Flutter’s $350 million purchase of NSX Group, aimed at penetrating the nascent Brazilian igaming market. News of the deal provided a modest bump to Flutter’s stock price, while shares of Playtech declined 2.9 percent.
In announcing the transaction, Flutter CEO Peter Jackson said, “Snai is one of the leading players in Italy, Europe’s largest regulated market. This transaction is compelling strategically and financially. It fits perfectly within our strategy for value creating M&A and creates a significant opportunity to accelerate Snai’s growth by providing them with access to Flutter’s market leading products and capabilities both in the U.S. and globally.
