REG - FlutterEntertainment - Acquisition of NSX Group

Flutter EntertainmentAnnouncement

13/09/2024 07:00

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RNS Number : 0437E  Flutter Entertainment PLC  13 September 2024

Creation of new Flutter Brazil business with addition of leading Brazilian
operator, NSX Group

New York, September 13, 2024: Flutter Entertainment (NYSE:FLUT; LSE:FLTR)
("Flutter"), the world's leading online sports betting and iGaming operator
today announces the acquisition of an initial 56% stake in NSX Group ("NSX"),
a leading Brazilian operator of the Betnacional brand for cash consideration
of approximately $350m(1).

The transaction fully aligns with Flutter's strategy to invest in leadership
positions in international markets, securing a podium position for Flutter on
completion in the regulating and fast-growing Brazilian market. NSX is the
number 4 operator in Brazil(2), with a portfolio of brands which include the
flagship Betnacional brand. On a standalone basis, NSX is expected to generate
revenue of approximately $256m and Adjusted EBITDA of approximately $34m in
2024(3).

Under the transaction agreement, on completion, Flutter will (i) pay cash
consideration of approximately $350m(1) and (ii) contribute its existing
Betfair Brazil business, in return for a 56% stake in the newly combined
Flutter Brazil business. In addition, a mechanism has been put in place to
enable Flutter to increase its shareholding through reciprocal put/call
arrangements in year five and year ten following the completion date(4).

This is a compelling acquisition, in line with Flutter's strategy and is
expected to create shareholder value as follows:

1. Delivers an enhanced competitive position in a fast growing, newly
regulated market:

·    Brazil is due to fully regulate its online sports betting and iGaming
market in early 2025 and has a number of highly attractive characteristics:

‒   A population of over 200 million, with sports, and soccer in
particular, being a key part of Brazilian culture

‒   Strong demand for sports betting and iGaming products with compound
annual gross gaming revenue (GGR) growth in the unregulated market of 38%
since 2018, to almost $3bn in 2023(2)

·    The majority of growth and market share gains have been delivered by
locally focused brands

·    Consolidation in the fully regulated market from early 2025 is
expected to benefit established, local operators, due to the associated tax,
licensing and compliance costs

·  The strength of the combined Flutter Brazil business will position it
exceptionally well to capitalize on the opportunity in this attractive market

2. Enhances our "local hero" brand portfolio with:

·  Addition of fast-growing, local brands to our existing Betfair business
to create a podium position in Brazil

‒   NSX entered the market in 2021, rapidly growing to be the number 4
operator (12% of the sports betting market and 9% share of the total online
market(2))

‒   Betfair Brazil also delivering strong growth with forecast revenue of
approximately $70m in 2024

·   A strong local management team enabling decision-making close to the
customer, who will lead the combined Flutter Brazil business

·   A proprietary technology platform developed locally in Brazil enabling
a fast-paced and agile product offering

 

3. Presents a compelling opportunity to drive synergies via access to the
Flutter Edge, and deliver meaningful value creation:

·   Revenue synergies will be achieved by providing NSX access to Flutter
proprietary pricing and risk management capabilities to deliver a
differentiated sportsbook product offering. This is in addition to the sharing
of Flutter iGaming expertise and content to enhance the iGaming experience

·  Flutter Brazil will be exceptionally well positioned to take full
advantage of the significant growth opportunity in the newly regulating
Brazilian market. In line with our successful strategy in other newly
regulated markets such as the US, we expect to drive market share growth and
embed future profitability through disciplined customer investment. This is
expected to result in a Flutter Brazil Adjusted EBITDA loss of approximately
$90-100m(5) in 2025

The transaction is consistent with our strategy and is another example of
Flutter allocating capital to drive shareholder value creation. We remain
committed to our medium-term leverage ratio of 2.0-2.5x(8,9) which allows for
flexibility for us to pursue value-creating acquisitions such as NSX.

We will provide a further update at our Investor Day on September 25, where we
expect to discuss Flutter's exciting organic growth and cash generation
potential in the medium-term, together with the capital allocation
opportunities that this will unlock.

Completion of the transaction is subject to customary regulatory clearances
and is expected to close by Q2 2025.

Peter Jackson, CEO, commented:

"I am excited to announce the addition of NSX, operator of Betnacional a
leading Brazilian sports betting and iGaming brand, to the Flutter portfolio.

We believe that combining the extensive local expertise of the NSX team, our
existing Betfair business and the power of the Flutter Edge, will create a
compelling opportunity to capitalize on the growth opportunity in Brazil which
presents an exciting runway of future growth."

 

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements reflect
our current expectations as to future events based on certain assumptions and
include any statement that does not directly relate to any historical or
current fact. In some cases, you can identify these forward-looking statements
by the use of words such as "outlook", "believe(s)", "expect(s)", "potential",
"continue(s)", "may", "will", "should", "could", "would", "seek(s)",
"predict(s)", "intend(s)", "trends", "plan(s)", "estimate(s)", "anticipates",
"projection", "goal", "target", "aspire", "will likely result", and or the
negative version of these words or other comparable words of a future or
forward-looking nature. Such forward-looking statements are subject to various
risks and uncertainties. Accordingly, there are or will be important factors
that could cause actual outcomes or results to differ materially from those
indicated in these statements. Such factors include, among others: Flutter's
ability to effectively compete in the global entertainment and gaming
industries; Flutter's ability to retain existing customers and to successfully
acquire new customers; Flutter's ability to develop new product offerings;
Flutter's ability to successfully acquire and integrate new businesses;
Flutter's ability to maintain relationships with third-parties; Flutter's
ability to maintain its reputation; public sentiment towards online betting
and iGaming generally; the potential impact of general economic conditions,
including inflation, rising interest rates and instability in the banking
system, on Flutter's liquidity, operations and personnel; Flutter's ability to
obtain and maintain licenses with gaming authorities, adverse changes to the
regulation of online betting and iGaming; the failure of additional
jurisdictions to legalize and regulate online betting and iGaming; Flutter's
ability to comply with complex, varied and evolving U.S. and international
laws and regulations relating to its business; Flutter's ability to raise
financing in the future; Flutter's success in retaining or recruiting
officers, key employees or directors; litigation and the ability to adequately
protect Flutter's intellectual property rights; the impact of data security
breaches or cyber-attacks on Flutter's systems; and Flutter's ability to
remediate material weaknesses in its internal control over financial
reporting.  In addition, the ability to achieve the synergies described in
this press release, or at all, is subject to various assumptions, which
involve risks and uncertainties. The ability to predict results or actual
effects of our plans and strategies is inherently uncertain. Accordingly,
actual results may differ materially from those expressed in, or implied by,
the forward-looking statements.

Additional factors that could cause the Company's results to differ materially
from those described in the forward-looking statements can be found in Part I,
"Item 1A. Risk Factors" of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2023 as filed with the Securities and Exchange
Commission (SEC) and other periodic filings with the SEC, which are accessible
on the SEC's website at www.sec.gov. Accordingly, there are or will be
important factors that could cause actual outcomes or results to differ
materially from those indicated in these statements. These factors should not
be construed as exhaustive and should be read in conjunction with the other
cautionary statements that are included in the Company's filings with the SEC.
The Company undertakes no obligation to publicly update or review any
forward-looking statement, whether as a result of new information, future
developments or otherwise, except as required by law.

About Flutter Entertainment plc

Flutter is the world's leading online sports betting and iGaming operator,
with a market leading position in the US and across the world. Our ambition is
to leverage our size and our challenger mindset to change our industry for the
better. By Changing the Game, we believe we can deliver long-term growth while
promoting a positive, sustainable future for all our stakeholders. We are
well-placed to do so through the distinctive, global advantages of the Flutter
Edge, which gives our brands access to group-wide benefits, as well as our
clear vision for sustainability through our Positive Impact Plan.

Flutter operates a diverse portfolio of leading online sports betting and
iGaming brands including FanDuel, Sky Betting & Gaming, Sportsbet,
PokerStars, Paddy Power, Sisal, tombola, Betfair, MaxBet, Junglee Games and
Adjarabet. We are the industry leader with $11,790m of revenue globally for
fiscal 2023, up 25% YoY, and $3,611m of revenue globally for the quarter ended
June 30, 2024.

Contacts:

 Investor Relations:                   Media Relations:
 Paul Tymms, Investor Relations        Kate Delahunty, Corporate Communications
 Ciara O'Mullane, Investor Relations   Rob Allen, Corporate Communications
 Liam Kealy, Investor Relations        Rupert Gowrley, Corporate Communications
 Email: investorrelations@flutter.com  Email: corporatecomms@flutter.com

 

Notes

 

1. Represents cash payment of R$1,981m at USD:BRL: 5.66 subject to completion
accounts adjustments

2. Source for market share and market growth based on Regulus partners and
internal estimates. Total online share of 9% is for year ended 31 December
2023

3. NSX revenue and Adjusted EBITDA(7) estimates for the twelve months ended 31
December 2024 are based on NSX internal reporting. This information may not
fully align with Flutter's US GAAP accounting policies and reporting following
completion of the transaction

4. All future transactions will be undertaken at fair market value based on an
agreed valuation or formal valuation by an independent valuer

5. It is expected that PokerStars casino and sportsbook products in Brazil
will be switched off from 1 January 2025 and will cost approximately $10m in
Adjusted EBITDA(7)

6. Adjusted EBITDA, Net Debt and Leverage Ratio are non-GAAP financial
measures. A reconciliation of our forward-looking non-GAAP financial measures
to the most directly comparable GAAP financial measure cannot be provided
without unreasonable effort. This is due to the inherent difficulty of
accurately forecasting the occurrence and financial impact of the adjusting
items necessary for such a reconciliation to be prepared of items that have
not yet occurred, are out of our control, or cannot be reasonably predicted

7. Adjusted EBITDA is defined as net income (loss) before income taxes; other
income, net; interest expense, net; depreciation and amortization; transaction
fees and associated costs; restructuring and integration costs; impairment of
PPE and intangible assets and share based compensation expense

8. Net debt is defined as total debt, excluding premiums, discounts, and
deferred financing expense, and the effect of foreign exchange that is
economically hedged as a result of our cross-currency interest rate swaps
reflecting the net cash outflow on maturity less cash and cash equivalents

9. Leverage ratio is defined as net debt divided by Adjusted EBITDA

 

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