ii view: Betfair owner Flutter spends $2.3bn on Italy’s Snaitech

Acquisition of Snaitech for $2.3 billion

Chief executive Peter Jackson said:

"I am delighted to announce the acquisition of Snai, 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 US and globally.

“I look forward to welcoming the Snai team to the Flutter Group and working with them to maximize the growth opportunity for our combined businesses."

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

ii round-up:

Betfair and Paddy Power owner Flutter Entertainment (LSE:FLTR) today strengthen it existing foothold in Europe's largest regulated betting market, buying the nation’s third-largest online bookie by market share, Snaitech, for $2.3 billion. 

Flutter, which earlier in 2024 moved its primary stock market listing from the UK to the USA, just days ago expanded in the fast-growing Brazilian market by acquiring a 56% share stake in online operator NSX Group for $350 million. The City estimates the Snaitech purchase to be potentially 10% earnings accretive for Flutter. 

Flutter shares rose around 1% in post announcement trading having come into this latest news up just over a fifth year-to-date. Shares for Ladbrokes owner Entain (LSE:ENT) have fall by around a quarter in that time. The FTSE 100 index is up 8% during 2024. 

US brands such as FanDuel, FOX Bet and PokerStars generated Flutter’s biggest chunk of revenues during 2023 at close to 40% and the UK & Ireland around a quarter. Revenues of $1.35 billion in 2023 for its existing Italian business accounted for close to 12% of group sales.

The acquisition of Snaitech, if allowed by regulators, brings a further €947 million ($1,051 million) of Italian related sales, along with $284 million in adjusted profit and a near 10% additional Italian market share. 

The deal is expected to complete in the second quarter of 2025. Flutter’s net debt of $5.5 billion as of late June leaves it with a leverage ratio of 2.6 times. The ratio is expected to increase soon after the deal completes but then rapidly reduce. Flutter continues to target a leverage ratio of between 2 and 2.5 times.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the acquisition news, flagging a target price of $247 per share. An investor day for Flutter is scheduled for 25 September. 

ii view:

Flutter was formed from the merger of Paddy Power, Betfair and The Stars Group between 2016 and 2020. Today, a UK stock market value of around £30 billion sits comfortably above UK listed rivals Entain and William Hill owner Evoke (LSE:EVOK). Australia is another notable region of strength, generating around 12% of 2023 sales, while both India and Brazil now feature within its international or rest of the world business.  

For investors, this latest acquisition adds to group net debt, potentially taking Flutter above management’s leverage comfort zone of 2-2.5 times. Problem gaming and the potential for increased future regulation across all or any of its territories should not be overlooked. Adverse sporting results can hinder profit margins, while the lack of any dividend payment contrasts with Ladbrokes owner Entain. 

• Shares for the future: big upgrade for this stock
• How fund managers are investing ahead of US election
• Diageo shares tipped to rebound

On the upside, this latest acquisition strengthens its position in Europe’s largest regulated market, Italy, where estimated gross gaming revenues totalled €21 billion in 2023. Cost synergies of at €70 million are expected to be achieved post the takeover of Snaitech. A move into adjusted profit for its largest US business was achieved in 2023, while likely growth for group markets such as India and Brazil is not to be overlooked. 

For now, and with acquisitions adding to existing organic trading momentum, this increasingly global gaming company's shareholder base is likely to be happy with the direction of travel.

Positives: 

• Diversity of both business type and geographical location
• Growing in the USA

Negatives:

• Possible ethical concerns
• No dividend payment

The average rating of stock market analysts:

Buy