M&A Announcement

Oct 18, 2021

Good morning, everyone, and welcome to today's presentation detailing Aristocrat's offer to acquire 100 percent of Playtech. My name is Trevor Croker, Aristocrat's CEO and joining me today is Julie Cameron Doe, Aristocrat's Chief Financial Officer and Mitchell Bowen, Aristocrats' Gaming CEO and Chief Transformation Officer. Before we begin, please note the usual disclaimer statements on slides 23 of the presentation materials. Due to legal restrictions, we are unable to discuss the equity raising other than the basic terms. So, we would appreciate it if no questions are asked on this call about the equity raising beyond the basic terms. I'll now move to today's agenda on Slide 4. This morning, we'll be providing a summary of the offer to acquire Playtech together with detail on Playtech's business, the strategic rationale for pursuing the acquisition, the characteristics of the combined group and details of funding arrangements including an overview of the proposed capital raising. We will then comment on our trading update before opening the floor to your questions. I'd also note a number of slides in the appendix to this presentation, which I won't speak to, but which may be helpful in providing extra context for the proposed acquisition. All amounts referred to are in Australian dollars unless otherwise specified. Moving now to slide 6, which provides a summary of the proposed acquisition on a page. I'll speak to a few key points only. In line with today's announcement, Aristocrat has offered to acquire 100% of Playtech at a cash offer price of 6.90p per share for total consideration of $3,900,000,000 Playtech is a leading technology provider that develops platforms and content for the global gaming industry. The transaction represents a multiple of 11.4x Playtech's June 2021 LTM EBITDA and is expected to generate mid to high single digit EPS accretion in the 1st full year of a risk credit ownership in FY2023 including cost synergies. The anticipated EPS accretion includes the estimated impact of the combined group potentially exiting certain jurisdictions which may not be consistent with the risk appetite and approach to compliance, which may reduce Playtech earnings by €50,000,000 to €80,000,000 or $78,000,000 to $125,000,000 in annual EBITDA. The acquisition will be funded by a fully underwritten US2.05 billion dollars Term Loan B Debt Facility along with a $1,300,000,000 fully underwritten pro rata Accelerated Renouncement Entitlement Offer or PATRIO and $1,100,000,000 in cash. Riskcraft's expected pro form a net debt to EBITDA is expected to be less than 2.5 times at completion. The transaction is subject to approval by the Playtech shareholders, the sanction of the Isle of Man Corp and certain antitrust foreign investment, gaming regulatory and financial regulatory consents and other approvals being obtained alongside certain more general conditions. The transaction is also subject to the sale of Panalto, which was announced by Playtech on 29 September 2021 being approved by Playtech shareholders and that there being no amendments or non compete or exclusively arrangements agreed by Playtech in connection with its structured agreement with Caliente. As you will see in the presentation, Aristocrat has received letters of intent or irrevocable undertakings from a number of major Playtech shareholders to vote in favor of the transaction. Moving now to Slide 7 for a summary of the strategic and financial rationale of the acquisition. The acquisition of Playtech offers compelling strategic and financial benefits. It will provide a risk trap with material scale in the already large and growing iGaming and Online Sports Betting segment, collectively referred to as online RNG. This represents an estimated total addressable market of US70 $1,000,000,000 globally and is predicted to grow in line with broader consumer and technology trends, which have only accelerated through COVID together with the regulation of additional jurisdictions. Online RMG offers new and complementary growth channels for Riskcrest land based gaming business and content. The acquisition will deliver medium term revenue and earnings growth, in particular in the fast growing North America online RMG segment, combining Aristocrat's strengths and exceptional gaming content, long term customer and regulatory relationships with Playtech's technology and platform. This is one of the key upsides. On a combined basis, Aristocrat and Playtech's distribution, technology and content will meet a much broader range of customer and player needs and deliver new and connected experiences unlocking additional value across the risk class portfolio and deepening customer engagement. Through Playtech's Snowtech business, a leading Italy exclusive omnichannel gaming operator, Aristocrat will have the opportunity to operate and innovate in a multiple European markets across the entire value chain and free of channel conflict. The transaction is expected to be mid to high single digit EPS accretive in the 1st full year of risk strat ownership financial year 2023. Pro form a for annualized cost savings and the estimated impact of Aristocrat potentially withdrawing from certain jurisdictions as previously referenced, Aristocrat is also expected to maintain a conservative gearing position and is committed to maintaining its current strong credit ratings. Turning now to a recap of Aristocrat's proven growth strategy on slide 8. Many of you will have seen our strategy driven previously. It describes our approach to growth at Aristocrat. We have an unwavering focus on share taking through sustained investment in great products, the best people and capability and strong business fundamentals. We deliver above category organic growth and accelerate our process through strategic accretive M and A, in particular, where that delivers us new capabilities and access to new segments. Our focus is long term as we've demonstrated by maintaining investment in D and D as well as our people, culture and talent throughout the recent COVID impacted period. The acquisition of Playtech is highly aligned to this strategy. We believe that online RNG represents the next logical adjacency for our gaming business and strongly supports our customer and player focus. Leveraging our balance sheet strength, we'll achieve instant scale and capability in this fast growing global segment, further expanding our recurring revenue base and continuing to diversify our operations for sustainable long term growth. Turning to slide 9. This slide highlights how RiskScrap and Playtech's distribution technology and content capabilities will combine to meet a broader range of customer and player needs. It also shows the size of estimated opportunities across the gaming value chain and in key segments. The gray boxes highlight Playtech's capabilities, while the shaded boxes highlight potential further capabilities or segments that could be addressed as future adjacencies. I won't step through all the detail, but the message here is that our businesses are not only highly complementary, that will come together to deliver a powerful integrated network of connected gaming experiences for customers and players that will be ideally positioned to meet emerging trends and demand. I'll now turn to an overview of Playtech's business on slide 11. Playtech is a leading technology provider that develops platforms and content for the global gaming industry as well as engaging directly with players as a B2C operator in select segments as I mentioned. Listed on the FTSE and headquartered in London, the company generated 1 $7,000,000,000 in revenue and $396,000,000 EBITDA in the 2020 financial year. Nearly 100 percent of its revenue is recurring, derived primarily from 2 key divisions, B2B and B2C. Playtech's B2B business covers all key RNG segments, including iGaming, Live Casino, Poker, Bingo and Sports Betting monetizing via a revenue share model. It provides proprietary online gaming technology and capabilities to gaming operators globally through an information management system or IMS and covers the end to end gaming value chain. Playtech's B2C business leverages its proprietary technology and capabilities to operate online gaming, gaming machines and retail betting directly as an operator. It predominantly consists of Snaitech. A risk press supports the sale of Panalto as previously announced by Playtech and we have therefore excluded the business from these materials and the acquisition costs. Turning to slide 12. Playtech provides proprietary B2B technology, leading game content and operational services globally. Playtech is also a B2C operator that provides structured agreements and B2C solutions to global casino and gaming operators including BEST 365, Caliente and Intain. Through its service offerings, Playtex is able to reach a broad spectrum of end users in casino games, poker, bingo and sports betting. Turning to slide 13. As I mentioned, this acquisition presents an opportunity to enter the attractive online RNG segment at scale. Online RNG is comprised of iGaming, online sports betting and iLotteries. For Playtech and Aristocrat, the main focus segments within online RMG are iGaming and online sports betting. This is what we mean when we refer to online RMG. Online RMG is a complementary adjacency to Aristocrats' existing gaming and digital businesses and provides another distribution channel for our world leading content. As previously referenced, we believe it has a very strong growth trajectory driven by underlying structural trends. With product innovation, customer demand and the opening of regulated jurisdictions, we believe the current US70 $1,000,000,000 addressable market has the potential to grow in line with broader consumer and technology trends, which have only accelerated through COVID. The North American market is forecast to see the strongest growth over the medium term. Slide 14 highlights Playtech's scale and presence in attractive online RNG Growth Regions. There's over 170 global licenses and operates in over 30 regulated jurisdictions with significant growth opportunities in North America. Turning to Slide 15, a more detail on Playtech's B2B business. This business provides proprietary online gaming technology and capabilities through the IMS platform to gaming operators globally. Playtech is a top 2 global provider of live casino platforms. Approximately 45% of B2B revenue is derived from casino and is highly complementary with the risk press existing gaming operations. In addition to the underlying technology platform, Playtech also provides access to more than 3,800 games through its platform as it develops games in house across 7 studios. Moving to Slide 16. Playtech's IMS allows single user accounts, increased cross selling and includes cutting edge tools to support responsible gaming outcomes and regulatory compliance. It combines content, technology platform, licensee services and global distribution to provide a broad range of gaming solutions in over 30 regulated jurisdictions. These solutions include games management, data analytics, campaign management, loyalty programs, payments and risk and fraud management, including Know Your Customer and anti money laundering functionality. The IMS is a one stop shop and a complete technology solution across all distribution channels. Turning now to slide 17 for an overview of Playtech's to see business. This consists predominantly of Snitek, a leading Italy based omni channel gaming operator. Italy is a key European market with attractive dynamics. Stotech is a fully vertically integrated retail and online gaming business with its own proprietary technology, strong brand loyalty and low fixed cost base and operational strength. In financial year 2020, B2C achieved revenue of $932,000,000 of which Snitec contributed 88%. From an EBITDA perspective, Snaitech contributed 95% of the $217,000,000 in reported EBITDA. Pleasingly, Snitek generated significant growth in its online activities, accounting for 2 thirds of its EBITDA profits. Other B2C brands within Playtech's portfolio include HappyBet, a retail sports betting shop business in Austria and Germany and Sun Bingo, which Playtech operates on behalf of News UK. As previously flagged, Playtech's B2C business presents Aristocrat with an opportunity to acquire new capabilities and operate and innovate across the entire value chain in multiple European markets where we are free of channel conflicts. I'll now move to Slide 19 to provide further detail on the strategic rationale and why we believe this proposed acquisition is so compelling. I previously talked through our key acquisition rationale We'll now step through each point starting on slide 20. As mentioned at the outset, we've pursued a consistent and proven strategy to risk scrap of growing share wherever we play and leveraging our increasing capabilities and our balance sheet to enter adjacencies and expand our addressable market over time. In the gaming business, we've done that with the acquisition of BGT and in mobile games, we've followed a similar path to achieve growth and sustained performance. Entering online RNG with Playtech is the next logical opportunity to significantly increase and diversify Ritzkratz's total addressable market and propel the next phase of growth in our business. Online RNG is currently a sizable opportunity, but significant growth is expected as I referenced due to underlying consumer technology trends and legislation in key global jurisdictions. Playtech's technology and platform will allow RiskScress to long term growth as more online R and D segments open up over time. Online R and D is also highly complementary to RiskScress existing gaming and free to play mobile business. It instantly increases Aristocrats TAM to around US300 $1,000,000,000 with further opportunity to unlock additional value across our existing portfolio. Slide 21 provides more detail on the U. S. Online gaming opportunity. As U. S. States regulate to allow online RNG, our gaming customers are increasingly demanding premium RNG solutions, making it the right time for risk to enter the segment. IGaming is currently legal and operational in 6 states in the U. S. With projections that it may reach 20 states by 2025 and a TAM of up to US25 $1,000,000,000 to US30 $1,000,000,000 by 2,030. In terms of online sports betting following the repeal of a key legislative inhibitor in May 2018, the segment has opened up rapidly in the U. S. It is currently legal and operational in 20 states and currently expectations are that this will increase to over 40 states by 2025. Slide 22 provides further color on the U. S. Opportunity. I won't step through the detail here other than to highlight that Aristocrat has a broad presence in U. S. Gaming jurisdictions operating in 41 states of the union along with tribal jurisdictions. We are present in all 6 jurisdictions where iGaming is currently legal and available. Our expectation is that online RNG operations will enhance our existing gaming business with limited risk of cannibalization given complementary portfolios and strong customer engagement. We believe that the combination of Playtech's proven RNG platform capabilities along with Aristocrats world class land based and social gaming content, long term regulator and customer relationships will unlock medium term revenue and earnings growth in particular in the U. S. Slide 23 provides another view of what this acquisition will deliver. We believe this opportunity will help us attract and retain even more of the industry's best content creators and talent over time. This acquisition will create a fully integrated gaming platform that will be able to quickly penetrate the online RNG segment globally and support Aristocrats long term growth aspirations. On a pro form a full year 2020 basis, the business delivered around $6,000,000,000 in revenue with broad scope to grow from here. Turning to slide 24. This slide provides a customer lens on the acquisition which would allow us to utilize our world leading concept and capabilities to meet a broader range of customers' needs and deliver connected experiences across land and digital gaming. Aristocrat's existing digital capabilities are also relevant with our growing success in digitization of land based gaming content, plus our ability to create popular digital first content. We will bring these powerful combined capabilities to bear to enhance our existing product portfolio, deliver new gaming experience across multiple channels, deepen customer relationships and drive growth in the growing online RNG segment. Slide 25 sets out another way to think about our strategy, in particular the growth in our portfolio and capability and the customer and player led journey we have been on. This has been accelerated periodically through strategic acquisitions, particularly Product Madness, BGT, Big Fish and Plarium, which have allowed us to broaden and in some respects connect our product portfolio, meeting more customer and payer needs. The acquisition of Playtech allows us to take the next material step forward in this process, closing key gaps in our capability and portfolio in terms of online RMG. This is relevant as our gaming customers are increasingly looking for RMG solutions as their operating models continue to evolve. Finally, I'd like to further set out a strategic value for Scitech and the B2C opportunity that is also a feature of this acquisition on slide 26. NYTEX provides the risk trap with a fully scaled vertically integrated B2C operation. Snowtek is the biggest contributor to Playtech's B2C division with financial year 2020 revenue of $816,000,000 and adjusted EBITDA of $206,000,000 Playtech enjoys strong brand loyalty. It has an experienced local leadership team with the innovative infrastructure platform and proprietary technology. Stitech had a solid performance in financial year 2020 despite COVID-nineteen headwinds and pleasingly achieved 92 zinc growth in online EBITDA demonstrating the company's resilience, profitability and ability to generate cash. Flytech's business model and leading platform was rolled out to HappyBet, which is now under Flytech management and provides an opportunity to expand the B2C business, especially in select European countries. We view this B2C exposure as strategically relevant in the context of ongoing convergence and an important source of capability building for our broader organization. I'll now turn to slide 28 and make some and comments on the combined group and financial aspects of the proposed acquisition. Aristocrat has a strong track record of successful strategic acquisitions. I've referred previously to major acquisitions we have completed as part of our growth journey over the past decade from product managers in 2012 to Big Fish in 2018. Our approach to M and A is highly disciplined and anchored in an understanding of what will drive value into the future and how the acquisition accelerates our strategy. I'd also like to comment on our intentions following the completion of the acquisition, namely we will undertake a detailed evaluation of Playtech Group and its businesses and operations. In particular, we'll do the following. Firstly, review Playtech's business in each jurisdiction to determine alignment with the risk strategy, profile and appetite of the combined group or its approach to compliance. Secondly, identify existing and new growth and development products and services that may require additional investment to drive profitable growth. And finally, identifying formula priority integration plans. We also take a focused approach to securing key talent, access to further detailed information required for Aristocrat to develop specific proposals with respect to Playtech's employees. We understand the importance of D and D to Playtech and its businesses, with technology platform and content innovation being a key driving factor in the success of its businesses. Aristocrat intends to continue to invest in this area. Specific areas of investment will be considered with Playtech management as part of our review. And we will apply RiskScratch's strong commitment to responsible gameplay and ensuring regulatory compliance across all operations. Slide 29 gives a view of the indicative composition of Aristocrats post acquisition. This is expected to significantly expand Aristocrats operations in complementary segments, further diversify its portfolio and enhance its recurring revenue model. Post acquisition, Aristocrats revenue is also expected to be diversified with outright sales and gaming operations making up 31% of pro form a financial year 2020 revenue compared to 43% reported prior to the acquisition. Digital and online RMG will comprise around 69% of pro form a financial year 2020 revenue compared to 57% prior to the acquisition. Recurring revenue is expected to increase from 80 to 85% post acquisition with all of Playtech's B2C and around 95% of B2B operations considered recurring revenue. Turning to slide 30. Aristocrats earnings will be further diversified across segments and geographies post acquisition, adding to the business' resilience. Revenue from international regions outside of the Americas and AMZ contributed 29 percent of total pro form a financial year 2020 revenue compared to 3% on an Aristocrats standalone basis. Following the acquisition, gaming and digital are collectively expected to make up around 76% of the pro form a group EBITDA with R and D delivering 24%. I'll now turn to the sources and uses commentary on Slide 31. The acquisition will be financed by a combination of cash, debt and equity. An IFA is in place to ensure RiskScress has committed financing available to pay the cash consideration to Playtech shareholders as required under the UK takeover code. A $1,300,000,000 equity raising by the way of an underwritten patria will provide the fairest possible structure for risk strat shareholders to participate in the raising. The balance of financing will come from a US2.05 billion dollars Term Loan B debt issuance to be conducted prior to the acquisition completion and $1,100,000,000 of existing cash held by Aristocrat. Turning to Slide 32. This is a financially compelling acquisition for Aristocrat. As previously referenced, post close of the transaction, Aristocrat will review Playtech's business in each jurisdiction to determine alignment with the risk class risk appetite and approach to compliance. We estimate the jurisdictions which we anticipate will be in the focus of the review contributed EBITDA of approximately €50,000,000 to €80,000,000 or €78,000,000 to 125,000,000 for the dollars for the financial year ended 31 December 2020. The acquisition is expected to be mid to high single to EPS accretive in financial year 2023 including cost synergies and inclusive of the estimated impact of the combined group potentially exiting certain jurisdictions as a result of the review. While the rationale for the transaction is to enhance the medium term growth potential of Aristocrat rather than cost synergies. Aristocrat expects to achieve operating costs and scale benefits across the combined group typical of transactions of this size including limited savings related to Playtech's listing. The anticipated cost savings are not expected to fully offset the potential impact of the combined group exiting certain jurisdictions as a result of the review. Excluding cost synergies, the acquisition is expected to be low to mid single digit EPS accretive. Aristocrat expects to deliver additional medium term revenue and earnings growth, in particular in the North America Online RNG segment through utilizing its long term customer relationships and industry leading content along with Playtech's technology and platform. At completion, Aristocrat expects pro form a leverage of less than 2.5 times net debt to EBITDA and is committed to maintain its current strong credit ratings as previously noted. Further details of the leverage impact of the acquisition are set out on Slide 33. I would just highlight here that consistent with our established track record, Aristocrat expects to resume deleveraging following the completion of the Playtech acquisition. I will now move to Slide 3435, which set out the details and terms of the Patriot and the entitlement of a timetable. Shareholders will be entitled to subscribe for 1 new share for each of their existing 20.56 shares under the Patriot offer to raise approximately $1,300,000,000 The entitlement offer will be conducted at $41.85 per new share and proceeds from the offer will be used to reduce the proportion of the commitments for borrowings under IFA and for associated costs. Please note the timetable and key dates for the entitlement offer as set out on Slide 35. I'll now step through a trading update in respect to the Aristocrat results for the 2021 fiscal year. Aristocrat expects to announce strong results for the 2021 full fiscal year to 30th September 2021, including normalized NPAD A of $864,000,000 This performance represents 81% NPAD A growth on the 2020 full fiscal year, reflecting enhanced leading position in gaming operations measured by an installed base of approximately 54,000 units, game performance of industry leading fee per day of approximately US51 dollars sustained growth in floor share across key gaming outright sales segments globally despite some regional lockdowns I. E. Australia. Digital bookings up 14% on financial year 2020 to circa US1.8 billion dollars with user acquisition expected to be at the top end of the historical range of 25% to 28 percent of overall digital revenues. Average bookings per daily active user increased 25% from US0.59 dollars in financial year 2020 to circa US0.74 dollars in financial year 2021. Continued D and D investment to drive sustained long term growth with investment up in absolute dollars and consistent with historic levels on a percentage of revenue basis and increasing SG and A across the business as we continue to scale, invest in and deliver on our growth strategy. This includes continuing to identify adjacencies that expand our capabilities to create new business and growth through product, distribution and investment, including M and A. We also maintained strong operating cash flows over the year with a cash balance of around $2,400,000,000 and a robust balance sheet with net debt to EBITDA of 0.5 times. Turning now to slide 38. I'd note again that further information on the acquisition and the online RNG segment has been provided in the appendix to your review. In summary and before I hand back to the operator to open the floor to your questions, let me recap the dimensions of this proposed acquisition. The proposed combination of a RiskScrap and Playtech would materially accelerate the RiskScrap's growth strategy and deliver shareholder benefits long term. It would deliver a RiskScrap instant material scale and capability in the US70 $1,000,000,000 online real money gaming segment. The opportunity to enter the fast growing U. S. Online RNG segment at an early stage in this trajectory is particularly exciting. The combination of Playtech's proven R and D platform capabilities with Aristocrats' world class land based and social gaming content, Long term customer and regulator relationships will forge a true industry leader in the global online RNG space, particularly in terms of B2B capabilities. Together, we believe that we will be well placed to meet fast evolving customer needs and player preferences, including for new and connected gaming experiences. The proposed acquisition continues a risk class approach of investing in medium- to long term growth and we're extremely excited by the opportunities that this will bring for our shareholders, people, customers and players. Finally, I want to stress that we are absolutely convinced of the benefits the combination of the RiskScress and Playtech will deliver for stakeholders. Thank you. And with that, I'll ask the operator to open the line for questions.