Aristocrat Seeks Global Expansion Through Playtech Acquisition
Australian poker machine manufacturer is seeking to drastically diversify its business model and wants to acquire real-money gaming company Playtech at a whopping $5bln. The technology firm makes gambling software and has a strong portfolio of proprietary assets that could be leveraged by Aristocrat in its global expansion efforts. Illegal in Australia, real-money gaming is taking the US by storm, and financial analysts expect this sector to be worth $70 billion in the US alone.
Playtech and Aristocrat teaming up is nothing short of a major power move into a market with huge upside potential. The real money gaming industry is positioned well for disruption, and these two powerhouses joining forces could usher in a new era of internet gambling in North America. ©PhotoMIX-Company/Pixabay
Aristocrat Leisure is a huge company that many average retail investors have never paid close attention to. Now the firm is going all-in with a massive AU$5bln acquisition of Playtech, a bet that will see it become the biggest player globally in real-money gaming. This controversial type of gambling has long ago been banned in Australia, primarily due to the high-speed, ease-of-access, and the lack of limits on what a client can potentially lose in a rapid gaming session.
Real-money gaming relies predominately on technology improvements in both hardware and software to deliver a better-optimized user experience to a customer than what they can get in a land-based casino. Customers now have access to cheap smartphones with incredibly cost-effective data plans, all of which make the delivery of these applications far easier than was previously the case. This shift in user behavior presents a major business opportunity for firms like Aristocrat and Playtech, who seem intent on leveraging their partnership to become a dominant player in this growing market.
After years of consolidating its market position, Aristocrat Leisure now sits within the top 20 bands of Australia’s most valuable companies. Its market capitalization is in excess of $30bln and they have proven itself to be a substantial contributor to the gambling technology and hardware space. Aristocrat aligns itself against several noteworthy competitors overseas, including International Gaming Technology, Konami, and Ainsworth.
Big Opportunity for Playtech
Playtech is a UK-listed company that trades on the London Stock Exchange. At the time Aristocrat made their acquisition bid, the $5bln offer is 58% above the nominal share price. There could yet still be a bidding war in the offing, as Playtech will potentially listen to offers from a number of interested parties, but as things stand currently, the Playtech board has close ties with Aristocrat, and it seems like the most logical path forward for the company.
A vote by Playtech shareholders in the UK is required before any deal will be finalized. Real-money gaming is booming in the macroeconomic sphere, Aristocrat reported a major uptick in the total revenues generated from gaming, with a $2.6bln total haul that contributed more than 50% to the post-tax profits of the company.
With the potential of a $100bln US market looming over the industry, there is a lot of motivation from all parties involved to get this deal signed and begin getting to work on plans to implement the policies. Whilst the practice is only legal in six US states so far, this number is expected to rise very quickly as states begin financial initiatives to raise extra funds to cover the enormous costs of the pandemic. Future growth entirely depends on the willingness of these states to change their legal stance towards real-money gaming.
Currently, there isn’t a lot of motivation to drastically alter the gambling laws in the United States. Each state has the liberty to determine exactly how it will deal with real-money gambling, and expectations are that in a few short years most of them will have adopted this new way of working.
Given this strong outlook on the market, analysts expect Aristocrat Leisure’s EBITDA to achieve a 17% increase up to the end of the financial year 2023. The strong momentum behind this growth will be fueled in large part by the compounding growth rate of the US economy, and a more liberal outlook on lawmaking around sports betting and gambling technology going forward.
Aristocrat has made clear that the deal will be a collaboration by two industry powerhouses. Aristocrat brings a wealth of knowledge on the functionalities of industry regulators, whilst Playtech provides best-in-class real-money gambling technology for a massive consumer base in the US and Europe. The combined group would offer a broad range of end-to-end solutions for gaming customers all over the world, as well as the ultimate user experience for a new generation of customer.
