Entain PLC (LSE:ENT) fell sharply as investors digested the £750mln acquisition of Polish sports-betting operator STS, via its Entain CEE joint venture.
The betting firm, which owns Ladbrokes and Coral, funded its part of the deal via a discounted placing raising £600mln at 1,230p, below the closing share price on Tuesday of 1,321p.
Matt Britzman, equity analyst at Hargreaves Lansdown, explained: “There’s some maths to the price drop, new shares will be issued that represent 8.3% of the ordinary share capital prior to this announcement – diluting the holdings of any investor not able to take part in the raise.”
Shares fell 9.6% to 1,194p in early exchanges.
But there were also question marks over the price paid by Entain.
Analysts at Davy think the price paid “looks relatively full” at 13.8x 2022 EBITDA, particularly in the context of Entain’s valuation.
Britzman agreed: “The price is a sticky point, and potential cost synergies of £10mln in the grand scheme of things are pretty thin.
“The £750mln total cost values STS at 11 times its expected cash profit (EBITDA), that’ll drop to below 10 if the synergies are delivered – but still, that’s likely to be ahead of Entain’s current valuation. There’ll be plenty of pressure to make this work,” he reckoned.
On the more positive side, analysts at Davy said Entain is acquiring a number-one sports operator (c.40% share) in an attractive market in a sector where scale is essential.
Peel Hunt agreed. “Entain does deal after deal, the cumulative impact is material but under-appreciated,” the broker said.
“In our view, Entain is right to pay up to achieve market leadership; acquiring both growth and diversification.”
Britzman also felt strategically “the deal makes sense”.
“It continues the expansion into fast-growing regions and leverages many of Entain’s existing capabilities.”