Mergers & Acquisitions

RB Capital Co-Founder: The structure of the DraftKings SBTech deal was "quite smart"

Julian Buhagiar, Co-Founder of M & A funding brokerage RB Capital, discusses DraftKings' planned acquisition of SBTech with Gambling Insider, as well as its effect on Kambi and where the supplier goes next.


Broadly, what was your initial reaction when you first heard the rumours about the deal?

It's interesting that the acquisition isn't being made by either party. It's being made by a special purpose acquisition vehicle [Diamond Eagle] and that in itself is quite important for the US market, because it is going to start unleashing a new trend over the next two to three years.

What do you think the impact is going to be for Kambi, which currently supplies to DraftKings?

Kambi is still going to be good, let’s be clear. In my view, this makes Kambi an acquisition target now.

But if they lose the deal with DraftKings and don't replace that revenue, the valuation could be affected. Right now, they have a good runway and they can make that mandate clear to any would-be buyer, that they have sustainable revenue in the short term. But they then need to supplant that with some good alternate streams. 

DraftKings have not announced any notice to terminate the deal [with Kambi], at least not as far as we know, so those revenues seem guaranteed and I think that is leverage on DraftKings’ part as well to ensure the SBTech deal goes through well.

I think DraftKings extended the contract with Kambi back in August to ensure they did get the deal they wanted from SBTech, and now they are still continuing to have that relationship to ensure SBTech actually do everything in their power necessary to ensure this acquisition goes through. 

Is it fair to say it's quite an intelligent move from DraftKings to do things that way?

The way they did it is actually quite smart. We knew there were delays, mainly on SBTech’s side, not on DraftKings’ side, for this deal to happen.  They still haven’t terminated or handed notice to terminate the Kambi deal, at least as far as we know. But they are actually ensured of a promised deal that actually goes through because you are still holding on to what is effectively your existing partners on the same terms.

Why do you think DraftKings in particular decided to purchase SBTech as opposed to any other supplier?

In terms of the tech union, it makes a lot of sense, clearly. While there are probably better or more readily available tech partners that could potentially have been part of this acquisition, this is a good reverse-merging strategy for DraftKings in any case. Importantly, because the assets of SBTech are mainly European and Asia-focused, commercially it is quite a good strategic opportunity. That allows DraftKings then to tap into what effectively is previously a locked market. The valuation is quite favourable and it is a good deal for SBTech as well.

It makes a lot of sense from DraftKings’ perspective, from SBTech’s maybe less so; you would need to ask what is the opportunity for SBTech besides the US. But I actually think because the business actually is quite well streamlined, they will not necessarily have any difficulty on technical integration and, normally, acquisitions like this bode well for the tech player of the two.

Just to follow up on that, do you think it makes more financial sense to purchase and bring SBTech in-house as opposed to outsourcing it?

It depends on the company; in this case, it did make a lot of sense, because I believe they can save money doing that. I think at that stage you need to question whether your operational expenses need to be that high; I think that is the first thing. 

The second thing, and particularly important for a US company, is that to own in-house tech has always been very favourably looked upon. It was always a matter of time really before DraftKings ensured they had good in-house tech.

It absolutely makes sense for a company, particularly public, to have its own tech, because if not, and we have seen this happening elsewhere, you can then be held at ransom with tech that is not your own. If you are a public player and shareholders do not like that, you see your stock starting to be shorter than you would be comfortable with.

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