View from the City: Reaction to GVC’s “sensible and modest” Neds acquisition
RB Capital says the Australian betting market is the biggest winner in this deal as GVC continues to “bulldoze market share”
GVC Holdings flexed its M&A muscles once again yesterday after sealing a deal for Australian betting start-up Neds for an initial £37m.
The acquisition could rise to £52m and is expected to give GVC a top-three market position in the country, with Neds operating alongside Ladbrokes Australia as part of GVC’s multi-brand strategy.
Here is the latest analysis and reaction to the deal:
RB Capital co-founder Julian Buhagiar
Dean Shannon has done well for himself. In just over a year since launching Neds, he has taken the business on an aggressive marketing drive, significantly bolstering revenues (but in so doing, also acquisition costs) yet managing to land a very lucrative takeover bid estimated at higher multiples of profit than recent acquisitions.
Such a bold move is likely to see Shannon back at his former employer, Ladbrokes Australia, less than two years after he left. This transition arc makes a lot of sense, for himself as well as GVC/Ladbrokes and Neds. Founding and building a business imbibed with the core values inherited from a previous venture, that becomes an acquirer, bodes well for future integration. The technology is also of particular interest, with both parties citing the proprietary tech stack as being of fundamental importance to the acquisition.
The biggest winner in this deal is the Australian market. GVC have clearly cemented their medium-term strategy here, making it clear that the Aussie market is lucrative when done properly. Antipodean LTVs are healthy and on the increase, notwithstanding recent minor ripples in the NSW commission. So the market is ripe for the picking if newer entrants know the rules.
GVC share price, as expected, was virtually unaffected. The group is moving ahead with achieving its pre-communicated targets, and relatively minor acquisitions such as this (in comparison to its group market capitalisation) do not impact shareholder sentiment. If, on the contrary, this was a tangential acquisition, the investors would have taken note, and the share price would have moved south, as has been seen with other recent takeovers. No (share price) news is good news indeed.
Wagering Edge consultant Adrian Molloy
This is a very interesting merging and one that will create another entity of scale on their side, given Ned’s phenomenal growth in a very short space of time.
Dean Shannon has been at the forefront of the wagering disruption and established Ladbrokes in Australia when he sold Bookmaker.com.au to the UK outfit, giving them a foothold in the Australian landscape.
In some respects it is a case of getting the band back together as Jason Scott worked under Dean at both Bookmaker.com.au and Ladbrokes. Jason will be in control of both entities.
The merger shows the intent of GVC by expanding their Australian portfolio under the guise of two of the best operators in the country.
GVC will be a major player now, giving them a market share that has them comfortably in the big league of players in the Australian market. This is key for the impending roll out of the state based POC tax where scale will be vital to combat these taxes and the high levels of product fees that exist, particularly in the thoroughbred and harness racing codes.
Regulus Partners analyst Paul Leyland
GVC’s acquisition of Neds demonstrates that in mature betting markets consolidation is now critical to profitability. Possibly a dangerously successful business model for the short term is to threaten incumbents’ returns on marketing by appearing to bulldoze market share (however unsustainably). It currently looks cheaper to use the balance sheet to take you out than use the L bit of the P&L to compete.
Canaccord Genuity analyst Simon Davies
This looks a sensible, if modest, acquisition for GVC. It is bulking up its position in Australia at a time of rising regulatory costs, with the introduction of state POC tax (at an average of 11% of gross profits) through 2019. The Neds deal strengthens GVC’s management team and technology base in Australia, and it should be profitable from 2020. We see losses of £7.8m in 2019, but an EBITDA of £6.2m in 2020 and £14.2m in 2021.