(News Bulletin 247) – The lottery and gambling specialist announced this Monday the planned acquisition of the Swedish Kindred for a company value of 2.6 billion euros. This will allow it to double the digitalization of its activity, and greatly strengthen its international presence.

FDJ is pulling out all the stops and laying the groundwork for external growth to intensify its shift into digital. The lottery and gambling specialist has used the leverage of mergers and acquisitions to develop, buying for example ZEturf (175 million euros) and the operator of the Irish lottery Premier Lotteries Ireland (350 million euros). ‘euros), in 2023.

But these operations prove to be incommensurate with that announced this Monday. Confirming previous information from the Wall Street Journal, the French group which entered the Parisian stock market in 2019 has announced the plan to acquire the Swedish Kindred, listed in Stockholm.

Founded in 1997 by Anders Ström and listed on the stock exchange in 2024, Kindred owns the 32Red and Unibet brands, and is present in seven of the top ten European markets, including the Netherlands (where the Swedish group is number one), the Kingdom -United Kingdom, France, Sweden and Belgium (these five countries represent more than 70% of its activity). In 2023, its turnover after gaming tax stood at £893 million, or around €1.04 billion.

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A price not too expensive

Its expected growth in “gross gaming product” (i.e. player stakes less winnings paid to these same players) between 2023 and 2025 is around 9% compared to 5% for FDJ, while its gross operating margin (Ebitda) is around 24% in 2023 compared to around 25% for FDJ.

In terms of price, FDJ intends to pay 130 Swedish crowns per share to acquire Kindred, which represents a premium of 24% compared to the last listed price on January 19, and 35% compared to the weighted average price of the last thirty days of quoting. The transaction implies an equity value of €2.5 billion for Kindred and an enterprise value (including debt) of €2.6 billion.

The public purchase offer, which received the support of the board of directors of the two groups, will be opened on February 19 for a maximum period of nine months and FDJ intends to obtain at least 90% of the capital to remove Kindred from the side. The French group has received commitments to contribute shares from five shareholders representing just under 28% of Kindred’s capital.

At first glance, FDJ does not overpay its target. Stifel calculates that the operation involves a multiple of around 11 times the Ebitda of the Swedish group, or more or less the multiple of 10 that FDJ had paid to buy Premium Lotteries Ireland. Invest Securities, for its part, estimates that the transaction values ​​Kindred at 13.5 times expected earnings this year, while the same twelve-month multiple for FDJ stands at over 16.

Furthermore, the price proposed by FDJ turns out to be around 22% lower than the peak of 157 crowns that Kindred shares experienced in September 2021. The stock then fell, penalized by a drop in its income following a setback in the Netherlands which had attracted the appetites of activist investors. As explained by the Wall Street Journal, the hedge fund Corvex (which owns 15% of the capital) revealed in April 2022 that it had taken a stake in the Swedish group and then urged Kindred to consider selling itself to a competitor to raise its share price. of Stock Exchange.

A significant increase in earnings per share

FDJ highlights the financial virtues of this merger. With Kindred and projecting the planned exit of the Swedish group from certain non-locally regulated markets (Norway, North America), FDJ’s gross gaming revenue would increase, based on 2023 figures, from 6.7 billion euros. to 7.9 billion, its turnover from 2.6 billion euros to 3.5 billion euros, its gross operating profit from 657 million euros to 860 million euros. Free cash flow would rise to 740 million euros from 584 million euros.

The operation will have a positive impact on FDJ’s Ebitda margin, which will allow it to exceed its initial objective set for 2025, i.e. more than 25%. The group also estimates that the accretion on its net profit per share will exceed 10%.

Oddo BHF, for its part, calculates an even greater impact on profit, of around 30% on its forecasts of net profit per share in 2025, including synergies of 80 million euros (corresponding to 5% of the turnover). combined business). For its part, FDJ has not delivered any synergy objectives.

Strategically, the acquisition of Kindred will significantly increase the group’s internationalization. The share of gross revenue from FDJ’s games outside France will thus increase from 2% to around 20%. The same goes for a point closely monitored by the market: its presence in online gaming, which had slowed down somewhat at the end of 2022.

The share of FDJ’s gross gaming revenue in digital would increase from 14% currently to 29%, once the acquisition of Kindred is completed. The online betting and gaming segment alone would be around 20% compared to 3% currently.

“This acquisition would not only allow FDJ to increase its market share in France, since Unibet currently holds a 10% to 15% share of gross gaming revenue and is one of the three main competitors of FDJ, but also the internationalization of FDJ in sports betting, online casinos, online bingo and online poker, which would make it one of the main online gambling operators in Europe”, appreciates Stifel.

A significant size effect

In terms of financing, FDJ will draw on its available cash (671 million euros at the end of December) and will use a bridging loan from French banks.

The operation should be finalized in the fourth quarter of 2024, the French company anticipates.

The market welcomed the announcement with enthusiasm, with FDJ shares rising 5.3% around 11:30 a.m., one of the strongest increases on the SBF 120.

“We consider this announcement to be positive given the size effect that it adds to the FDJ, particularly in a very competitive market (online games, Editor’s note), where it is extremely difficult to create brands in a manner organic,” praises Stifel.

“We view this transaction as a major step for FDJ in its transformation into a diversified gaming player in Western Europe, from a leader in lottery in France. In particular, the combination of the positions of Kindred and FDJ will strengthen FDJ’s market share in online betting and games in France (including sports betting) open to competition, in the top 3 players, which has been a clear focus of FDJ’s strategy since its introduction on the stock market”, underlines Oddo BHF for its part.

FDJ has also published certain indicators for the 2023 financial year. In the fourth quarter, its revenues increased by 7.1% excluding scope effect to 747 million euros. Over the whole of 2023, these revenues increased by 2.8% on a comparable basis to 2.62 billion euros while its current Ebitda margin stood at 25.1%. “This high rate takes into account the exceptional level of sporting results very favorable to the operator at the end of the year and a reversal of provisions relating to disputes with former agent brokers. Without these elements, the margin rate would come out to 24.3%,” explains the company.