Five things we learned from 888’s £2.2bn purchase of William Hill International

The worst kept secret in gambling was finally revealed on Thursday when 888 clinched a £2.2bn deal to acquire William Hill’s non-US assets from Caesars Entertainment, fewer than 12 months after the US firm bought the whole group in a £2.9bn takeover.

Speaking about the conclusion of the process, which will also see 888 take on a major retail portfolio for the very first time, CEO Itai Pazner hailed the deal as a “transformational”.

However, will that diversification into retail prove a step too far for a firm which has so far excelled in online?

Here’s what we learned in the immediate aftermath of the announcement.

Here we go again

As anyone cognizant of William Hill’s history will know 888 has previously tried to acquire Hills, most notably in 2016 when the operator teamed up with Rank Group on a £3bn bid, which was ultimately rejected by Hills board. That was a year after Hills tried and failed to snap up 888 for £750m.

However, those discussions never truly went away and have ultimately been realised with yesterdays announcement. Discussing the history between the two firms, Pazner confirmed several prior approaches, but suggested Hills was not the only dish on the M&A menu.

“We look at other opportunities almost all the time, different scales and different kinds of combinations, not only mergers but acquisitions as well,” Pazner explained.

“The market has been very lively, and there’s been a lot of consolidation, so different kinds of opportunities come our way. Some of them we approach, some we don’t, its a mixture,” he added.

Long-term observers of 888 have lauded the firm’s recent financial performance, with analysts lining up to offer their buy recommendations to investors. Much of this was to do with the firm’s strong balance sheet, something which has allowed the firm to take on more than £2bn in long-term debt to finance the acquisition in quite the hedge.

Discussing the decision to double down on debt, Pazner referenced the inherent need to take on debt in order to finance transformational deals.

“If you go for a transformational deal, that will almost always either include a significant raise of equity or debt or a combination of the two,” he said. “So once we went into this process, we knew it would require significant amounts of debt and leverage on the business, but we felt this is the right time to do it.

“The business is trading very, very well and the balance sheet was essentially clean. We’ve made already in the last few years huge investments in our product and now we want to bring scale on to these products.

“William Hill is not in a very dissimilar position, they’ve been in a good growing position during the last 12 months. “The main thing is you want to make sure you have the ability to pay back debts fast and to grow the business, and with two well-positioned businesses, I think we have a better ability to do that,”Pazner concluded.

Meet the new boss?

In a press release announcing the deal, Pazner said he was “highly impressed” with the Hills International management team under CEO Ulrik Bengtsson and with his stewardship of the firm through the previous two years.

However, the 888 CEO was tight-lipped in regards to just how long Bengtsson and his team would be sticking around. Pazner admitted that while it was too early to speak about the future (the deal is set to close in H1 2022), it would remain business as usual at Hills for some time to come.

“It’s still very early. Having said that, there’s a very strong leadership and management team there that we’re planning to work with and together define what the future business is going to look like,” Pazner told EGR.

“In respect of Ulrik, he’s committed to seeing through the transition with me, supporting this transaction and the transition from Caesars to 888 [in the US]. There’s a really excellent team at William Hill and we’re looking forward to working with them,” he added.

William Hill International CEO Ulrik Bengtsson

Breaking up is never easy

Independent of management movements, much of the combined group’s immediate future is already written in the decoupling of the Hills International business from Caesars. Addressing this issue, Pazner confirmed the project to remove Caesars from the Hills equation is already well underway.

“They started working on that project months ago, moving the different parts that the US business is taking.

“In the meantime, the international business is providing services to William Hill US and that will continue until the US segment becomes independent. Our timeline for that is somewhere between nine to 18 months based on the service agreement that we have with them,” he added.

A key stepping stone in this project was the agreement on the future of the William Hill US brand identity, which Caesars has already pledged to retain, albeit on a far smaller scale through its US retail sportsbooks.

888 confirmed it is not able to use the William Hill brand in the US at all, instead deferring to its newly launched Sports Illustrated Sportsbook brand. Pazner revealed the agreement with Caesars will include full IP and brand rights and will run “in perpetuity”.

High street blues?

William Hill is one of the UK’s oldest bookmakers at 87 years old. The business has a substantial retail footprint comprising of 1,400 UK shops. 888 by contrast, works exclusively in the online sector, at least until yesterday’s announcement.

Given the gravity of this move, it was only natural that many of the questions posed yesterday focused on 888’s ability to manage and grow retail. Especially when it was previous thought the shops, which have been slashed by ~30% in number post the FOBT stake cuts to £2 a spin, would be offloaded to retail rivals.

888 sees omni-channel opportunities and the ability to acquire first-time depositing customers. “We think retail is a good business in terms of its profitability profile, its cash generation, how it helps build the legacy of the William Hill brand in the UK,” Pazner told EGR.

“There’s an opportunity to connect and create direct connections with customers through the retail and through the great staff that they have there in the shops. Those are plans that are well underway by the existing William Hill team and they will continue executing those plans.

“They are the retail experts, and they will continue to lead that part of the business in the combined group. It’s their project, and we’re not planning to interfere in any way,” he added.

Pazner was bullish about retail’s prospects despite wider decreasing trends and the value add in respect of customer acquisition, even in the face of potential restrictions introduced as part of the Gambling Act 2005 review.

“I think that they are key marketing assets, even if there are restrictions, because of their presence in prime locations across the country,” Pazner explained.

“It’s not only the presence of the shops and the branding, but it’s also the ability of the consumer to enter and communicate with someone, that sentiment that there’s a real physical location.

“Its more than just the signage, and if there are advertising restrictions, there’s additional benefits to having a retail business,” Pazner added.

888 CEO Itai Pazner

Platform pressure

888 and William Hill each bring to the table a wide range of products and technologies, all of which are likely to play some role in the group’s ongoing strategy as two businesses become one.

Discussing the sheer plethora of products and tech available, 888’s senior management team revealed the firm’s desire to move all assets onto one platform, admitting this would take a substantial amount of time and resource to realise.

Elaborating on the scope of this challenge, Pazner explained: “Based on our synergies, the project we’re working to is about two to three years in length.

“We’ll start with analysing the different options and platforms that the combined group has. There are quite a few very interesting assets that have been built on both sides.

“At a very high level, we’re looking to take the best of both and give the consumers the best products we can and concentrate investment not only on fewer tech stacks and products, but by making deeper investments in the ones we choose,” he added.

Additionally, Pazner expressed his admiration for the Mr Green brand and its significant presence across the key Nordic region, where 888 lacks brand presence and market share.

“Mr Green is definitely a brand we like, we were competing with William Hill for Mr Green a few years ago and we see it as a strong brand in areas we’ve been less focused on, so we definitely plan to keep it,” Pazner concluded.