Online giant Entain has agreed to acquire a 75% stake in Croatian market leader SuperSport for €690m, in what it expects to be the first of many acquisitions in Central and Eastern Europe.

Entain will partner with Czech investment firm EMMA Capital to create a new venture named Entain CEE, in which Entain will own a 75% stake.

This new business – intended to make acquisitions in Central and Eastern Europe – will then acquire SuperSport, which is the largest betting and gaming brand in Croatia.

While Entain cited SuperSport’s 54% market share as one reason for doing the deal, it also suggested that the deal will just be the start of a flurry of M&A activity targeting Central and Eastern Europe.

The Entain board said the business would create “an exciting platform” in this region, led by SuperSport CEO Radim Haluza.

“The combination of Entain’s global scale, access to capital and content, EMMA’s regional knowledge and connectivity, alongside the expert local operational knowledge of Radim and his team, makes Entain CEE uniquely positioned to unlock the significant opportunity across the region,” the board said. “This bespoke structure will allow Entain to join with further leading local operators through Entain CEE to continue to grow this unique platform across the region.”

Entain chair Jette Nygaard-Andersen said there was a serious opportunity to expand across the region beyond the SuperSport deal.

“By bringing together Entain’s global expertise and EMMA’s regional investment track record, we are creating a growth platform with considerable opportunity,” she said. “Expansion across CEE [Central and Eastern Europe] is a core component of our growth strategy, and we look forward to having Radim on board to help drive this opportunity.”

Pavel Horák, EMMA’s chief investment officer, said Entain was well-positioned to take advantage of the opportunities in the region.

“EMMA is very happy to be partnering with the leading global betting, gaming and interactive entertainment business to unlock the opportunity posed by the CEE betting and gaming market,” he said. “We see the Entain CEE structure as a clear opportunity for creating value for shareholders, and we look forward to working closely and collaboratively with Entain.”

Haluza said he was excited to lead the new venture.

“I am looking forward to joining with Entain and further building on the significant opportunity presented in this region,” he said. “The prospect of leading Entain CEE to drive expansion in fully regulated markets is an exciting opportunity, and EMMA’s investment expertise combined with Entain’s world-class platform will give us the competitive edge in delivering on the CEE opportunity.”

The Entain board said that while there are a number of businesses in the region that are strong in one market, these operators have struggled to expand further. This, the board said, presented an opportunity for Entain to help these businesses expand.

“The CEE market is currently led by local operators who have often struggled to scale or consolidate across the region, providing a compelling opportunity for Entain with its industry leading capabilities,” Entain’s board said.

The operator will also have an option in its contract with EMMA that will allow it to buy out the entire venture after three years. The business did not disclose how much it would have to pay to do so.

Entain also owns Enlabs, which operates in Eastern Europe, though did not mention if it will become part of Entain CEE.

Local hero

Entain will pay €600m in cash to EMMA for the 75% stake in SuperSport, and a further payment depending on SuperSport’s financial performance this year. This contingent payment is expected to be €90m. This would value the entire SuperSport business at €920m.

SuperSport’s earnings before interest, tax, depreciation and amortisation (EBITDA) for 2022 are expected to be around €96m, which would suggest an EBITDA multiple of 9.6x. Its EBITDA margin is 52%, suggesting revenue of around €180m.

Entain also expects SuperSport to contribute positive earnings for the group within its first full year of ownership, and expects cost synergies of €5m from the deal by 2024.

The acquisition will be financed through a €700m bridge loan from Deutsche Bank, Lloyds, Mediobanca, NatWest, and Santander

“We are excited to create Entain CEE with EMMA to underpin our strategy across the CEE region, and to be acquiring the leading betting and gaming operator in the highly attractive, fully regulated Croatian market,” Nygaard-Andersen said. “We see Croatia as an exciting, dynamic country which Entain CEE is perfectly positioned to expand from – we are very much looking forward to growing our business responsibly within the country and the region.”

The deal is set to close in Q4.

Entain announced the deal alongside its financial report for the first half of 2022. As previously announced, revenue grew by 18% year-on-year, but its online segment experienced a decline as the business said inflation prompted customers to reduce spend. With the publication of the preliminary results in July, some investors expressed concern that the online struggles could continue into 2023.

Complex markets

Regulus Partners, though, noted that finding growth in Central and Eastern Europe might prove more difficult than expected.

“The key issue for us is that each CEE market remains uniquely different and complex, making cross-regional synergies evasive; operational execution is likely to be very demanding,” Regulus said. “Further, while ‘emerging markets’ in some respects, most Balkan countries already have some of the highest gambling spend per capita and highest levels of betting-led channel shift globally, making secular growth difficult. Therefore, while we believe that Entain and EMMA are absolutely doing the right thing in terms of looking for an effective balance between scale and localisation, this is not the same as discovering an easy route to emerging market growth.”

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