NYX Gaming Group Limited and privately held OB Topco Limited (“OpenBet”), announced today they have entered into a binding share purchase agreement (the “Agreement”) pursuant to which NYX will acquire 100% of the issued and outstanding shares of OpenBet from funds managed by Vitruvian Partners LLP, its co-investors and management (the “Sellers”). The total consideration of £270.0 million (which includes repayment of OpenBet’s £95.4 million existing third party debt1) will be paid in cash and financed as described below. The boards of directors of NYX and OpenBet have unanimously approved the transaction contemplated by the Agreement (the “Transaction”). All $ figures are in CAD dollars unless noted otherwise.
The transaction will join together two of the world’s most established and proven suppliers to create an organization that will deliver the leading end to end solution for regulated gaming markets. The combined strength of the two businesses will provide customers around the globe with premium betting and gaming solutions across all channels.
Key Transaction Highlights
- OpenBet’s sportsbook platform has leading market share and operates exclusively in regulated markets
○ 100% regulated, operating and licensed in the strictest jurisdictions
○ OpenBet has industry leading technology and in 2014 processed 11 billion transactions and as many as 56 million transactions in a 24 hour period
○ Sportsbook platform completes NYX’s product line-up and provides the opportunity for expanding NYX’s presence in the U.K. and other regulated global markets
- Strengthens and expands relationships with blue chip customers
○ OpenBet’s blue chip customer base includes many of the most dominant bookmakers in the U.K. and other regulated global gaming markets
○ Complementary top tier customer base further strengthens NYX’s leading distribution network
- Proven track record of revenue and adjusted EBITDA growth
○ For the fiscal year ending June 2015, OpenBet generated revenue and adjusted EBITDA of £64.5 million and £21.8 million, respectively2
○ For the three months ending December 2015, OpenBet generated unaudited revenue and adjusted EBITDA of £17.8 million and £8.0 million, respectively
○ Based on the annualized adjusted EBITDA for the three month period ending December 31, 2015, OpenBet is being purchased at an attractive multiple of 8.4x EBITDA
- NYX is uniquely positioned to extract significant revenue and cost synergies from the combined business
○ NYX expects to generate annual cost synergies of C$4.0 to C$6.0 million and revenue synergies of C$8.0 to C$10.0 million (excluding the Development Program, described below)
- William Hill PLC (“William Hill”) and Sky Betting and Gaming (“SkyBet”) will be participating in the Transaction through a preferred equity investment of £100.0 million in aggregate to partially fund the Transaction
- Further to William Hill’s preferred equity investment, William Hill has engaged NYX and OpenBet in a development program (the “Development Program”) to further modernize OpenBet’s technology. The Development Program will take approximately three years to complete and is estimated to generate £10.0 million in EBITDA to NYX over that three year period
- The structure of the Transaction allows NYX and OpenBet to further invest in the combined platform, products and content to deliver greater efficiencies and innovation across the customer group
- Management expects the Transaction to be accretive to adjusted earnings per share and provide meaningful free-cash-flow
“The acquisition of OpenBet by NYX completes the portfolio of industry leading products and services we offer to our customers. They are two highly complementary businesses with key strengths in regulated markets, technology services and gaming content. It positions NYX as the leading provider of B2B betting and gaming solutions on a global scale. We are looking forward to working with OpenBet and their customers to help them to deliver world class experiences to their players” said Matt Davey, CEO of NYX.
Jeremy Thompson-Hill, CEO of OpenBet further commented: “The joining of OpenBet and NYX is a natural union born out of synergies in product, the customer base and, importantly, culture. It will enable us to leverage our knowledge, strengths and resources to deliver our customers with best-in-class products and technologies across all verticals and channels.”
Robin Chhabra, Group Director of Strategy & Corporate Development at William Hill commented: “I am delighted that William Hill is supporting NYX’s vision for growth and expansion into sports betting alongside its strong gaming proposition. Our investment in NYX builds on our long standing relationship with both NYX and OpenBet.”
Richard Flint, CEO of SkyBet added: “Sky Betting & Gaming is thrilled to be supporting the acquisition of OpenBet by NYX. OpenBet is a market-leading platform that we have worked closely with for a number of years. We are confident that NYX will be excellent owners of OpenBet and will bring a fresh perspective to the business that will benefit all of their customers. We’re excited about the long term future of this business.”
James Midmer, Head of Corporate Communications at Paddy Power Betfair plc, one of OpenBet’s key customers, said “We look forward to working with NYX and OpenBet and are confident that the combined group will continue to deliver a great product and service.”
The Transaction is subject to customary conditions and approvals, including regulatory and stock exchange approvals, and is expected to close in May 2016 and no later than 3 months after executing the Agreement.
Initial Purchase Price Financing Details
The purchase price will be financed through a combination of (i) new senior secured credit facilities; (ii) convertible preference shares in a new wholly-owned subsidiary called NYX Digital Gaming (OB Holdings) Limited (“Holdco”) incorporated for the purpose of the acquisition (“Convertible Preference Shares”); (iii) a placement of new unsecured convertible debentures and (iv) a “bought deal” private placement offering of subscription receipts.
- £125.0 million senior secured credit facilities from a leading alternative credit provider, consisting of a £120.0 million term loan facility and a £5.0 million revolving credit facility (the “Debt Facility”).
- The term loan facility is expected to bear interest at an initial annual rate of LIBOR plus 725 basis points (LIBOR floor of 0.75%) and will have a term of 5.5 years. The term loan facility will be prepayable at 101% of the principal balance outstanding within the first three years and at par thereafter
- As part of the Transaction, NYX has secured the consent of holders of its current 9.0% senior secured debentures, representing over 662/3% of the principal amount outstanding of the existing debentures, to amend and waive compliance with certain terms of the indenture governing the debentures (the “Existing Indenture”) in order to permit the Transaction and related acquisition financing. NYX has agreed to offer to purchase all of the existing debentures at a price of 109% of the principal amount of the debentures, plus accrued and unpaid interest thereon, if any, payable in a new series of senior secured debentures due December 31, 2019 and bearing interest at 10% (subject to upward (11.0%) and downward (9.0%) adjustment in the event certain liquidity and EBITDA thresholds are met). Holders who tender their existing debentures will also receive warrant coverage equal to 35% of the principal amount of the existing debentures so tendered exercisable for a period of three years at a price of $3.50. As part of the debenture refinancing, certain existing debenture holders have agreed to subscribe for an additional C$7.0 million in aggregate of new debentures and will also receive warrants of the Company at 100% coverage, on the same terms. The debenture refinancing, including the warrant issuance, remains subject to the approval of the TSX Venture Exchange (the “TSXV”).
- As part of the Transaction, William Hill and SkyBet will be investing £80.0 million and £20.0 million, respectively, through Convertible Preference Shares to be issued by Holdco.
- The Convertible Preference Shares will: (i) be issuable in denominations of C$1,000 per Convertible Preference Share and will have an aggregate initial liquidation preference of C$187 million (the “Initial Liquidation Preference”); (ii) not be entitled to receive any dividends; (iii) in respect of any liquidity event, rank behind the Debt Facility, but otherwise senior to the ordinary shares; (iv) not be entitled to vote at general meetings of the ordinary shareholders; (v) be entitled to a pre-emptive right on the issuance of shares in OpenBet, any of OpenBet’s subsidiaries or NYX; and (vi) not be transferrable or assignable, except to an affiliate or nominee.
In addition, the Convertible Preference Shares will have certain conversion rights, a summary of which are provided below:
• at the holder’s option (the “Investor Equity Conversion”), be transferable to NYX, in whole or in part, in exchange for ordinary shares of NYX at any time from their date of issue upon 35 days’ advance written notice to NYX, at the then applicable exchange ratio (the “Exchange Ratio”), which initially will be 46.8 million ordinary shares (calculated by dividing the Initial Liquidation Preference by $4.00 (the “Initial Liquidation Price”)). The Exchange Ratio will increase annually at an initial rate of 6.0% and be subject to certain adjustments to prevent dilution of the Convertible Preference Shares in certain circumstances.
• at NYX’s option, be transferable to NYX, in whole or in part, in exchange for ordinary shares in NYX on or after the third anniversary of completion of the Transaction (subject to certain conditions), provided the closing price for the ordinary shares of NYX is equal to or greater than $6.25 for 20 days in any 30 day consecutive period and the average trading volume of the ordinary shares during that period is greater than 1 per cent of the then issued ordinary shares. In such circumstances, the price payable for such transfer shall be calculated using the Exchange Ratio.
- at the holder’s option, be transferable to NYX, in whole or in part, in exchange for consideration on or after the tenth anniversary of completion of the Transaction, provided the average 20-day volume weighted trading price of the ordinary shares of NYX is less than Initial Liquidation Price. In such circumstances, the consideration payable for such transfer shall be (at the election of the holder) either (i) a number of ordinary shares in NYX calculated using the Exchange Ratio but using the subscription price from the “bought deal” private placement of $2.75 in lieu of the Initial Liquidation Price; or (ii) a cash payment calculated using the Exchange Ratio.
- In order to comply with applicable TSXV requirements, none of the conversion rights and obligations of the Convertible Preference Shares that would result in William Hill holding 20 per cent or more of the issued and outstanding ordinary shares of NYX at the relevant time shall be exercisable in respect of that excess amount unless and until NYX has obtained shareholder approval in respect of the conversion of such excess. NYX expects to address the request for such shareholder approval at its next AGM, which is expected to be held in Q2 2016.
- ○ In the event that NYX is unable to obtain shareholder approval for the excess conversion rights of William Hill, certain penalties will be imposed on NYX under the terms of the arrangements with William Hill
- ○ For so long as William Hill holds 75 per cent of its initial investment and SkyBet holds 100 per cent of its initial investment (each subject to exceptions), they shall be entitled to customary reserved matters that prevent the circumvention of the rights and/or value of the Convertible Preference Shares.
- ○ The issuance of the Convertible Preference Shares remains subject to the review and approval of the TSXV.
• $10.0 million investment by a strategic investor in unsecured convertible debentures, which will bear interest at a rate of 10% annually and will mature on June 30, 2019. The convertible debentures will automatically convert into Special Warrants as part of the Offering (defined below) at the Offering Price (defined below) upon completion of the Transaction.
Bought Private Placement Offering
The Transaction will also be funded through a “bought deal” private placement offering of subscription receipts as further described below.
NYX has entered into an underwriting agreement (the “Underwriting Agreement”) to sell, on a bought deal basis, 54,550,000 subscription receipts (“Subscription Receipts”) at a price of $2.75 per Subscription Receipt (the “Offering Price”) for gross proceeds of $150.0 million (the “Offering”) to Canaccord Genuity Corp. (“Canaccord Genuity”), Macquarie Capital Markets Canada Ltd. (“Macquarie Canada”, together with Canaccord Genuity, the “Co-Leads”) and a syndicate of underwriters (together with Canaccord Genuity and Macquarie Canada, the “Underwriters”). Each Subscription Receipt will entitle the holder thereof to receive, upon the Transaction closing, without payment of additional consideration or further action, one special warrant of NYX (“Special Warrant”) in exchange for each Subscription Receipt.
Following the issuance of the Subscription Receipts, the Company will use its commercially reasonable efforts to file a prospectus in order to qualify in Canada the issuance of the underlying ordinary shares and warrants of NYX upon conversion of the Special Warrants. Each Special Warrant will automatically convert into one ordinary share and one-quarter of an ordinary share purchase warrant (each whole warrant, a “Warrant”) upon the earlier of (i) the third business day following the issuance of a final receipt for the prospectus, and (ii) the date that is four months and one day from the date of the closing of the Offering. The net proceeds of the Offering will be used to fund in part the Transaction, certain costs related to the Transaction and for general corporate purposes. Each whole Warrant will entitle the holder to acquire one ordinary share of NYX for an exercise price of $3.50 per ordinary share at any time for a period of three years following the closing of the Offering.
The Offering is expected to close on or about April 25, 2016 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the TSXV.
NYX has granted the Underwriters an option to purchase up to an additional 8.2 million Subscription Receipts on the same terms as the Offering (the “Underwriters’ Option”), representing additional gross proceeds of $22.5 million if the Underwriters’ Option is exercised in full. The Underwriters’ Option is exercisable at any time up to 48 hours prior to the closing of the Offering. If exercised, the net proceeds of the Underwriters’ Option are expected to be used in connection with the Transaction and for general corporate purposes.
The Subscription Receipts will be issued pursuant to a subscription receipt agreement (the “Subscription Receipt Agreement”) whereby the proceeds of the Offering, less 50% of the underwriters’ commission payable in connection therewith and certain transaction expense amounts, will be held in escrow by a third party Subscription Receipt agent pending delivery of notice of the closing of the Transaction. If: (i) the Transaction does not close on or prior to July 4, 2016 (which date may be extended up to an additional 30 days by the Co-Leads on behalf of the Underwriters, in their sole discretion); or (ii) NYX advises the Subscription Receipt agent and the Co-Leads or announces to the public that the Transaction will not be completed (in either case, a termination event, and the date upon which such event occurs, the “Termination Date”), the Subscription Receipt agent and NYX will return to holders of Subscription Receipts an amount per Subscription Receipt equal to the Offering Price plus a pro rata share of the interest earned on the escrowed funds, net of any applicable withholding taxes, and the Subscription Receipts will be cancelled.
The securities to be issued under the Offering will be offered by way of private placement exemptions in all the provinces and territories of Canada, in the United States on a private placement basis pursuant to an exemption from the registration requirements pursuant to Rule 144A of the United States Securities Act of 1933, as amended, and to qualified institutional investors outside of Canada and the United States on a private placement or equivalent basis. All securities issued pursuant to the Offering will be subject to a statutory four-month hold period in accordance with Canadian securities legislation, subject to the prospectus qualification referred to above. The securities being offered have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent U.S. registration or an applicable exemption from the U.S. registration requirements. This news release does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The Agreement provides for the acquisition by NYX Digital Gaming (OB SPV) Limited, a newly incorporated wholly-owned subsidiary of Holdco (“Bidco”), of the entire issued share capital of OpenBet and certain outstanding shareholder loan notes issued by a member of the OpenBet group from the Sellers for an enterprise value of £270 million. As at December 31, 2015, OpenBet had total assets of £144.5 million and total liabilities (including shareholder loans) of £307.2 million.
Pursuant to the pricing mechanism adopted by the parties, Bidco has also agreed to pay the Sellers additional consideration at the rate of £48,000 per day for the period between the date of the Agreement and completion of the Transaction to reflect the fact that NYX will have had the benefit of the OpenBet group trading since 30 September 2015.
Completion of the Agreement is conditional on the Gaming Policy and Enforcement Branch of the British Columbia Ministry of Public Scrutiny and Solicitor General having approved the Acquisition pursuant to the British Columbia Control Act SBC 2002 (the “Acquisition Condition”) within 3 months after the date of the date of this announcement (or such later date as the parties may agree) (the “Long Stop Date”).
If Bidco fails to satisfy the Acquisition Condition or otherwise fails to proceed to completion if it is in a position to do so on or before the Long Stop Date, Bidco is required to pay to the Sellers a reverse break fee in the amount of up to £15 million and may also be liable for damages for breach of contract. NYX (which has guaranteed the performance of Bidco’s obligations under the Agreement), a subsidiary of William Hill and a subsidiary of SkyBet have entered into a separate agreement which sets out the basis upon which those parties will be responsible for the payment and/or funding of the reverse break fee should it become payable.
As is customary with deals involving institutional sellers, the warranties provided by those parties are limited in scope. In addition, key members of the OpenBet management team have provided customary warranties relating to the OpenBet group’s business and operations and NYX has obtained warranty and indemnity insurance. All parties involved in the Transaction and financings related thereto are not at non-arm’s length to NYX.
OpenBet’s financial statements were prepared in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
Canaccord Genuity and Macquarie Capital (USA) Inc. are acting as exclusive financial advisors to NYX in connection with the Transaction. The Underwriters are represented by Cassels Brock and Blackwell LLP. Morgan Stanley & Co. International plc is acting as financial advisor to the Sellers. NYX is represented by Stikeman Elliott LLP and Dentons UKMEA LLP acting as U.K. counsel. The Sellers are represented by Dickson Minto W.S., acting as U.K. counsel.