Long time no CEE: the rationale behind Entain's SuperSport purchase

“If you go into a pub or café, you will see the staff are wearing SuperSport T-shirts,” mused Entain CEO Jette Nygaard-Andersen on the company’s Q2 results investor call as she talked up the acquisition of multi-channel bookmaker SuperSport. The FTSE 100 firm is to part with an initial €600m (£506m) in cash on completion to acquire the leading Croatian operator, which boasts a 54% market share and proprietary tech platform as well as high brand recognition in the country. Entain will pay another expected €90m based on SuperSport’s EBITDA performance in 2022. The deal, financed through a €700m bridge loan, looks set to value the business at €920m, or 9.6x its 2022 EBITDA. The acquisition, borne out of a new joint venture with Entain and Czech private equity outfit EMMA Capital, dubbed Entain CEE, will see the operator expand into a region Nygaard-Andersen labelled a “highly attractive growth market” with around €5bn of regulated gross gaming revenue. This part of the world is expected to grow at over 10% per year through 2025, Entain said. Beginning in Croatia, Entain plans to tackle the remaining nine markets in Central and Eastern Europe (CEE), comprising of Romania, Poland, Slovakia, the Czech Republic, Bulgaria, Serbia, Montenegro, North Macedonia and Bosnia and Herzegovina, as it looks to couple growing markets with its impressive performance in the US, while offsetting the regulatory headwinds battering Western Europe. The joint venture (75% owned by Entain and 25% by EMMA Capital) – with EMMA Capital having previously made investments into Casino Austria and Lottery Italia – will be fronted by current SuperSport CEO Radim Haluza. The high hopes for the venture saw Entain highlight how the transaction should be mid-to-single-digit earnings accretive in its first full year, with preliminary costs synergies of €5m per year. Entain CFO Rob Wood revealed to EGR Intel the firm should be at full run-rate by the end of 2023, with further synergies realised from 2024 onwards. Meanwhile, Regulus Partners noted SuperSport generates approximately €200m in revenue, with EBITDA margins of around 52%. Croats spend an average of €50 per capita with SuperSport alone, the consultancy firm stated.

Promising potential

Wood said that acquiring SuperSport was not solely driven by the target’s attractiveness but also by the chance to establish a solid foothold for greater expansion in the region. Entain noted that 85% of SuperSport’s revenue comes from its online division, coupled with a compound annual growth rate (CAGR) from 2016 to 2021 of 16.6% for revenue and 20.8% for EBITDA, all underpinned by healthy EBITDA margins. With the deal set to close in Q4 2022, Wood reveals that the new joint venture is not resting on its laurels and is instead actively exploring new M&A opportunities in the region. The hope is to have a presence in the other CEE countries, with Entain acting as the lead international operator in CEE. He tells EGR: “We will already start work with EMMA Capital on the other nine countries and what we think the best route of attack is; it won’t always be M&A. We now have a brand and a product set that we could use organically, and we also have Entain brands and Entain products, which the same management team could use as well. “I’d be disappointed if it’s two years before we take the next step but with M&A you can’t always wave a magic wand,” he adds. Wood notes that EMMA Capital “knows the region inside out” and with SuperSport’s proprietary tech stack, it puts Entain in a strong position. Another key reason for the dive into Croatia came from Nygaard-Andersen as she argued that a lack of international operator presence in CEE essentially allowed Entain to grab first-mover advantage. She explained: “It’s really interesting when you have a closer look at the region, that there is actually none of the multinationals or international operators that have any success in taking meaningful share. That is because you see strong local brands and actually very few of those local brands cross borders. Also, the local operators have had a difficulty in actually expanding.” This is where Entain comes in – being able to drive capital and operational knowhow into the businesses it acquires to continue its expansion. With an already impressive 54% market share in Croatia, SuperSport is basically being given a shot of adrenaline to an already hefty Entain arm.

Shopping local

The strategy of acquiring a local hero is one that has played out well in the past for Entain with the purchase of Bet.pt in Portugal in October 2020, followed up by the acquisition of Baltic firm Enlabs for €373m and Polish sports betting operator Totolotek, as well as an earnings-related deal announced in June 2022 that could see Entain pay €850m for BetCity in the Netherlands. Enlabs CEO George Ustinov recently revealed that his company had posted a 50% year-on-year growth in net gaming revenue (NGR) since being acquired by Entain in March 2021, while two-year customer growth rate is up a whopping 70% on a CAGR basis. Enlabs noted it expects to maintain its leading market share in Latvia and soon become number one in Estonia and number two in Lithuania. Meanwhile, Wood referenced how BetCity, which had an impressive 20% share of the Netherlands’ regulated online market in Q4 2021, is expected to return around €40m in EBITDA in 2023. Entain is still waiting for Dutch licences for its bwin and Party brands. Wood says: “The strategy is about taking us into new regulated markets. SuperSport, Enlabs and BetCity are all bang on strategy. You always want to be one of the larger operators in the market, so our focus is always on podium position targets when looking at countries.” Looking back to the UK, Wood said that the market, despite Entain’s long legacy there, was becoming less significant as an overall driver of business of growth. While online NGR fell by 15%, with ramped-up affordability measures taking their toll, the retail sector grew impressively against tough Covid comparisons. Overall, UK revenue was up 30% for the quarter, but Wood and Entain are continuing to look away from the mature, crowded and heavily regulated market. Wood says: “While the UK is an important market for us, it’s now down to 29% of our global business. Therefore, 70%+ of our online revenue is coming from outside the UK. And that 29% will keep falling as things like the US continues to grow and we do more M&A with BetCity and SuperSport coming into the mix. It’s an ever-smaller piece of the pie.”

UK and away

By geographically diversifying the business model, Entain is shifting focus towards markets with more leeway. A branch that can bend before being broken supports weight better than a brittle one. The podium place in the US via its BetMGM joint venture with MGM Resorts driven by NGR of $608m for the period cushions blows in Europe while expanding eastwards will offset issues in the UK and, until recently, the Netherlands. Wood recognises this, and while the UK continues to do the job, while not ripping up any trees, it allows the company to expand its wings in search of new opportunities. This, combined with the cost-of-living crisis and the aforementioned affordability checks, means diversification is the name of the game. Wood adds: “Our sector has proven time and time again that great resilience to downturns in the economy and I don’t see this being any different. We do, however, have to say that we’re not immune and I think we need to recognise that. “While we remain vigilant, we are fortunate to benefit from a number of territories where they’re not seeing any macro impact at all. It’s small in the grand scheme of things so there is no let-up in our growth strategy. We continue to attack opportunities in M&A and the US.” If attack is the name of the game, Entain isn’t wasting time in the war room. They are out on the battlefield, readying for a drive to capitalise on the first-mover advantage. While the US continues to grow at an exponential rate, the expansion closer to home is the front to keep an eye on. Entain may be on the way to having CEE sewn up before other operators get a sniff, before the tail wagging begins on the next untapped corner of the world.