M&A Announcement

Mar 16, 2021

Good morning, and thank you for all joining us at short notice for this important investor update. This is Sam Swanell, Group CEO, and I'm joined on the call today by Group CFO, Andrew Millwall and President of Technology and Product, Manjit Gomvesin. Turning to Slide three. As announced earlier today, PointsBet has entered into a binding share purchase agreement to acquire Bannock Technology Limited for USD 43,000,000 on a cash and debt free basis. The purchase price will be paid 55% in cash and the remainder in scrip, being 1,750,000.00 company shares calculated using the twenty day VWAP immediately prior to the date of the agreement. These shares will be issued under the company's Listing Rule 7.1, placement capacity. Turning to Slide four. Established in 2015, Banning Technology is a Dublin based B2B provider of proprietary risk management platforms and quantitative driven trading models that support complex betting products across numerous sports, including the four major American sports and international soccer. Bannock has a team has built a team of 40 staff with deep experience creating products in the mature and sophisticated European sports wagering market with a key focus on in play betting. The acquisition provides PointsBet with a European technology and operations hub, which will enable PointsBet to attract talent from the mature European and UK markets. Having such a deep bench of European based sports wagering technologists will assist in accelerating recruitment efforts in that region as key talent seeks to apply their European learnings to the burgeoning U. S. Market. Moving to Slide five. Bannock was founded by Mark Hughes, Alex Ziebenbergen, Hadrian Lepetre and Rob Reck, all of whom played a major part in establishing the quant's division of Paddy Power, being now part of Flutter Entertainment. The four founders will have the following roles within the Pointsbeck Group. Mark Hughes will become Group Chief Operating Officer. Alex Ziebenbergen will become the Vice President of Engineering Trading Platform Adrian Lapetre will become Vice President of Quantitative Analytics and Rob Reck will become a Product and Technology Advisor to PointsBet. The founders will receive 65% of their total transaction consideration in PointsBet's scrip. The scrip will be subject to lockups for periods of between twelve and thirty six months, aligning the interests of these individuals with the ongoing success of PointsBet. Turning to Slide six. Over the next three years, in play wagering is expected to represent circa 75% of all sports wagering activity in The United States. This acquisition accelerates PointsBet's accelerates PointsBet's technology road map and places the company in a prime position to take advantage of the coming growth in in play sports betting activity in The United States. I believe this acquisition will position PointsBet as The U. S. Leader of in play sports wagering. The strategic rationale for the acquisition is to accelerate and strengthen PointsBet's in play technology and product road map by delivering 40 leading technology and product professionals together with proven market leading in play models, platforms, products. In play clients are more valuable than the traditional pre match better. In particular, the higher engagement of in play client leads to more play days, more betting sessions, and ultimately more turnover in revenue. However, in play clients seek a superior betting experience based on a fast performing and reliable technology, high uptime availability of markets throughout a match, faster bet acceptance, and depth and breadth of in play product offering, including increased player prop and micro market opportunities. Therefore, owning and controlling first class in play betting technology is a must. Having considered various other solutions, it is clear that the Bannock team and technology is best in market. Bannock currently provides services to several of the world's premium sportsbook operators. Points of it will continue to honor these existing B2B contracts until their expiry, with the revenues generated assisting in covering the overheads of the Bannock business, the majority of which are staffing costs. The Bannock acquisition provides significant strategic benefits to PointsBet. A meaningful ROI is expected when considering a conservative increase in customer lifetime value across our current U. S. States and our expected rollout in further U. S. States. This will be driven by increased share of wallet, gross margin improvement and improvement improved retention as well as the future benefits from cost internalizations. While we continue to honor Bannock's existing B2B relationships, we don't expect the acquisition will require additional funding from the group. I will now hand over to Manjit to provide some further details on how this acquisition will accelerate and strengthen our existing capabilities. Thank you, Sam. Turning to Slide seven. Technology is at the forefront of everything we do at PointsBet. As Sam has previously noted, PointsBet has taken an approach to control our destiny by owning in house proprietary technology since day one. This has always been our number one priority. As the opening of legal US sports betting accelerates, it has become clear that the in play opportunity will be significant, and those with the best depth and breadth of products will win. With this in mind, the acquisition of Bannock is a strategic approach to strengthening our in play capabilities, and it accelerates speeds to market while allowing us to own market leading technology and control our destiny. Let me now step through what the acquisition of Bannock delivers to accelerate our technology road map and how it allows us to deliver on our objectives faster. Firstly, it will deliver clear product enhancement and market leading differentiation. This will assist us in building a rich in play sports betting experience for our customers and will deliver much sought after innovative micro markets and player prop betting products. Secondly, it will assist in driving improved customer retention and lifetime value through an increase in player share of wallet and through increased brand trust, which comes from having a superior in play product in betting uptime. Thirdly, this allows for a product led point of distinction in our marketing strategy and will deliver strong customer advocacy. And, fourthly, over time, as we continue to internalize data feeds, our cost for data feeds will reduce. Before I hand back to Sam, I would like to reference slide eight, which gives an overview of the key areas of product exploration which will directly benefit from this acquisition. I'll mention just a few of these. Points one, two, and three deliver a complete product for in play and pregame betting, including same game same game parlays, player props, and micro markets for the key US sports. With increased market uptime and modern tooling, points six and seven increased market availability and price stability. On points eight and nine, the promotion and vet recommendation engines will deliver personalized content automatically for our customers. With call to action stats and game visualization, points ten and eleven will offer a richer customer experience. Lastly, in play betting creates a fun experience for our customers and is projected to dominate sports betting. Supporting high volume and high quality in play betting changes the fundamental operation of a sports betting platform requiring automation and intelligence. As you see from the areas we have covered, we are well positioned for innovation in this space. I'll now hand back to Sam for concluding comments. Thanks, Manjit. It is clear that the long term success of an operator in The US sports wagering market will be largely determined by the quality of a sportsbook's in play product offering and user experience. In Bannock, we are acquiring a best in class proven product with world leading talent. This will see clear product enhancement and market leading differentiation and lead to optimization of critical success factors such as reduction in cost per acquisition, increased client retention, increased share of wallet, and increased lifetime value. We've consistently stated that excellence in product will be the ultimate determinant of success in The US sports betting market. And with today's transaction, PointsBet is strengthening and accelerating its product road map. I'm now happy to take any questions which directly relate to this acquisition. Thank you. If you wish to ask a question, please press star one on your telephone and wait you. Your first question comes from Rohan Sundram from MST Financial. Just a couple of quick ones. Firstly, can I ask how did the acquisition come about? How was it originated? And maybe, Sam, if you can just talk through how Inplay enhances the cross sell opportunity into online casinos, that'd be great. Thank you. Yes. Certainly. Hi, Rowan. Look, the opportunity came about where, as we've always spoken about, we're committed to proprietary technology, but we've always got our eyes open for opportunities that may be able to accelerate and strengthen our position in terms of our product road map. I think it's fair to say that we have had a look at the full spectrum of similar businesses in the marketplace, and we know all, let's call it, relevant b to b providers and b to c providers that that that could be of of value. And in finding Bannock, we found that the partner that delivered what what we believe are the critical elements for this US in place sports betting product. So just a result of understanding how important this area is, looking at opportunities that may be able to accelerate our own development in this space and identifying Banneker's as clearly the number one opportunity. And what was the second part, Rowan? It was around the the cross sell into online casino, how in play actually enhances that opportunity. Yeah. Look. It's been obviously, from a point to bet perspective, we haven't watched our gaming product yet. That's coming soon in Michigan and in New Jersey, as as you're aware. But from previous experience in the space, the the, let's call it, the alignment between an in play better and their propensity to play online casino and the pure pre match better, there's certainly a higher propensity from from other businesses that we've looked at. You know, the the natural you can see the natural synergies there in that there's quick fire betting opportunities. You're not you're not putting a bet on pre match and then waiting three hours for that match to consider, to complete. You know, you'll there's a there's an opportunity to bet regularly. And so I think there's a there's a clear sort of, alignment there. Thanks, Anne. Your next question comes from Sasha Krihan from Evans and Partners. A couple of questions. First of all, Sam, are you able to give a little bit of color on once you wind back your once you wind back Bannock's b two b contracts, what the remaining cost will be? And should I take should we take it from that that you will no longer provide a b two b service once those contracts expire? Yes, that's correct. We've made this acquisition for the benefits that Bannock can provide to Pointsbit as an in house resource. Obviously, we will honor the b two b relationships that they have, but as those contracts expire, we wouldn't plan to renew them. Basically, look at these costs as being people that we would have hired anyway. What we've what we've just done is ensure that we can find the best 40 people with the most experience and with a you know, an advanced product, already. So these are these are roles that we would have continued to add to our team to flesh out our in house product and technology team. We're just picking them up in this transaction with Banning. Is this something that others can replicate with an investment? You say you're going be the market leader in The US space on the back of this. Is it something that's replicable with enough investment? Our view is that these guys are best at what they do. And combined with what management has built currently in our technology and products technology and product division, that we will have the opportunity to lead the market here. I don't believe it is that easy to replicate. I think if we look across the marketplace in our assessment of in play products out there, what we plan to deliver, we don't believe is currently out there in the marketplace. So I think everyone is aware of the opportunity of in play betting and in particular US in play betting, but missing that the complexity and the challenges to to really deliver a best in class product. I don't think anyone will be able to deliver what what we're going to deliver, and that indirectly tells you that I don't think anyone has the the current capability in some of their teams. I think, you know Yep. You know, Flutter would be the closest, you know, closest comparison, and a lot of that success comes down to the impact that this group of individuals had on on the Flutter business a few years ago. Okay. Great. One other question, we'll give someone else a go. There's a comment in one of your documents about this being your first European operations. Is there much we can read into that in terms of an interest in the Europe European sports betting market? No. No. This is this is just us setting up an office. You know, obviously, we've set up offices in in India and and other places where we think we can access best in class talent. I think it just, you know, makes sense that now having the base of, this group there, it does make it easier, having a an a European HQ to attract and retain talent from that part of the world that can get exposure to the exciting US opportunity. So no no intentions to launch beyond The US and Australia. Yep. Okay. Thank you. Your next question comes from Damian Williamson from Bell Potter. Sam, Andy and Manjit. Just a question on the in play technology. Can you just outline how this enhances what you currently offer? I assume that your current in play offer would stack up pretty well. But can you sort of outline what this new Banner acquisition does to enhance what you currently got on offer? Yes. Certainly, Damien. Hope you're well. Yes. I think, look, our asset has been recognized in The US market where where in play is is operating online. You know, our product is seen as a is a as a top tier product. That's what gives us the confidence that by adding these individuals and this team that we can, grow from that perspective and really prove ourselves to be elite in this space. But the main the easiest, let's call it, elements to understand are, one, your ability to keep markets open through a game. So, obviously, in in matches, there's critical moments of where things are happening, and and the odds that you're offering clients can go stale very quickly. And a real differentiator between the good operators and the and the average operators is your ability to maximize uptime or minimize downtime where you're not offering markets because you've suspended them because you don't have the confidence in your models and your prices to withstand, you know, what's happening in the game. So we wanna improve our uptime. We wanna be able to leave our markets up for longer, and then that's a clear differentiator. Because, know, if you're a punter, you when you wanna place a bet, you wanna place a bet. You don't wanna have markets suspended on you. Depth and breadth of products. Obviously, to bet in play, you're you're dealing in live data. You're dealing with things that are happening at once. So to the more markets you offer, the more complicated the markets, let's call it player props, micro markets, etcetera, the more complexity that you introduce into your back office support of those products. So with these algorithms, the tools, data ingestion, etcetera, we believe we can have a greater depth and breadth of product in our position. So they're probably the two easiest examples. The final one I'd probably say is on margin and ensuring that not only do you have prices up, but they are actually extremely accurate and maximizing margin on the the relative outcomes of the profit you're betting on. And we see these guys certainly enhancing our ability there as well. Yes. And also, in terms of the technology, like you obviously got implied betting Betfair. Would would you sort of, you know, ensure that, yeah, like, part of that that technology that you ensure that there's no opportunity between Betfair and what you're offering as well? Yeah. I mean, that's always a that's always a consideration for bookmakers, whether that's premature in play, is, you know, having an assessment of what's going on in the market and being able to digest those market indicators and then automate those market indicators as seamlessly as possible. So that's something that we we do, you know, and and, you know, Betfair being an exchange is is relevant to those sorts of indicators. But, yeah, I think it's why it's part of the wider picture of having lots of data points and being able to use them in an automated fashion. Okay. No. Thanks, Sam. Well done, guys.