Amaya-William Hill merger would create a global gaming powerhouse: Cantor Fitzgerald

A merger between Canada’s Amaya (Amaya Stock Quote, Chart, News: TSX:AYA) and the United Kingdom’s William Hill would “create a powerhouse in global gaming”, says Cantor Fitzgerald Canada analyst Ralph Garcea.

After much speculation, Amaya and U.K.-based betting firm William Hill Friday confirmed they are in discussions about a merger.

“These discussions are in progress, and there can be no certainty that an agreement will be reached,” said a press release issued late Friday. The release offered that “the potential merger would be consistent with the strategic objectives of both William Hill and Amaya and would create a clear international leader across on-line sports betting, poker and casino.”

The press release said a potential union would happen through a reverse takeover in which the smaller William Hill would take over Amaya and list it shares in the United Kingdom.

Garcea says there is a good chance that this merger could go through, but says there is also the possibility that a private equity player could emerge. He thinks a strategic buyer would pay between (C) $25-$35 for Amaya, while a private equity buyer might pay as much as $30-$35 for the company. He notes a wide range of pricing possibilities exists in the current landscape, pointing to the Paddy Power/Betfair acquisition, which was an all-share deal that was done at an EV/Sales of 5.4x and an EV/EBITDA multiple of 23.7x. The industry, he notes, averages an EV/Sales of 3.1x and an EV/EBITDA of 10.6x.

“Amaya and William Hill released a statement after the initial reports and confirmed they have been discussing a potential all-share merger of equals, with William Hill, the smaller company, taking over Amaya in a reverse takeover, and the new merge company listed in the UK,” says the analyst. “We note if this were to occur, it would create a powerhouse in global gaming and a plethora of cross-selling opportunities. We also note that William Hill does not currently have a permanent CEO and should a transaction occur, it is likely that AYA CEO Rafi Ashkenazi would take the helm of the merge co. AYA would immediately impact WMH’s strategy to grow its online business and cost synergies could amount to more than ~$125M. Although we like the possibility of an AYA/WMH merger, we believe private equity has yet to show their cards.”

Garcea says a number of factors have emerged that has led to industry-wide consolidation in gaming, including the introduction of the UK Point of Consumption Tax and other EU VAT taxes, combined with an accelerated migration to online and mobile gaming. He points to Paddy Power’s acquisition of Betfair, NYX Gaming’s pickup of OpenBet, and GTECH’s acquisition of IGT as some recent large examples of M&A in the space.

In a research update to clients today, Garcea maintained his “Buy” recommendation and his one-year target price of C$40.00/US$32.00 on Amaya, implying a return of 71 per cent at the time of publication.

Garcea believes Amaya will generate Adjusted EBITDA of $496.3-million on revenue of $1.156-billion in fiscal 2016, numbers he expects will climb to EBITDA of $575.7-million on a topline of $1.338-billion the following year.

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