Penn National Gaming (NASDAQ:PENN) is paying $2 billion in cash and equity to acquire Score Media and Gaming (NASDAQ:SCR) in a bid to capitalize on the approval of single-game wagering in Canada and to bring gaming technology in-house.
The regional casino operator is paying $17 in cash and 0.2398 shares for each share of theScore, valuing the Toronto-based target at $34 — a roughly 88 percent premium to where the stock closed on Aug. 4. Penn already owned 4.7 percent of the Canadian company.
The takeover marks a rapid progression for theScore stock. Last September, the shares moved from the Toronto Venture Exchange to the more traditional Toronto Stock Exchange (TSX). By February, the company was trading on the Nasdaq following a US initial public offering (IPO). With the deal slated to close in the first quarter of 2022, that means theScore will have spent just a year as US-listed firm.
With the acquisition, Penn joins a growing list of online casino and sports wagering companies seeking vertical integration and reduced costs by moving technology development in-house.
It will also allow Penn National to drive margin expansion by eliminating fees and expenses currently being paid to third party technology and service providers,” according to a statement.
To date, the deal for theScore is Penn’s largest in the sports betting arena, easily dwarfing the $163 million in cash and stock it doled in January 2020 to buy 36 percent Barstool Sports. The casino operator has rights to acquire that company for $450 million.
With theScore, Penn Makes Canada Call
Canada recently signed off on single-game sports wagering. While that move is expected to benefit an array of US-based operators, theScore is the leader in its home market, providing Penn with ready made access into what’s expected to be a fast-growing sports wagering market.
As Penn CEO Jay Snowden notes, theScore is already the number one sports betting mobile app in Canada and number three in North America. The Levy family will continue overseeing day-to-day operations at the betting and media company and theScore brand will remain in tact with Penn operating the acquired firm as a stand-alone business.
“SCR’s strength lies in its strong and loyal Canada brand awareness, in-house technology and unique integrated media and betting offering enjoyed by ~4 million highly engaged ‘bet intended’ sports monthly average user (MAU) enthusiasts,” said Macquarie analyst Chad Beynon in a note out today.
Users of theScore spend an average of almost two hours per month on the app. In the US, theScore Bet app is available in Colorado, Indiana, Iowa and New Jersey. How integration with Penn’s Barstool Sportsbook plays out remains to be seen, but Beynon sees potentially powerful synergies.
“We believe combining the highly engaged Barstool and theScore audiences will result in a powerful customer acquisition funnel and positions the combined company for share gains in the US and Canada,” said the analyst.
Deal Particulars
Immediately following its February Nasdaq listing, Score Media was highlighted as a takeover target and Penn’s move on the company is the latest in a long series of combinations and partnerships involving gaming and media entities.
The Pennsylvania-based casino operator said the transaction will be accretive earnings before interest, taxes, depreciation and amortization (EBITDA) in the second year following closure and that will add “an incremental $200 million+ medium term adjusted EBITDA, and $500 million+ of incremental long term adjusted EBITDA upside.”
The acquisition also fits with the ever important mission of customer retention. Penn says users of theScore Bet app produce a handle that’s 88 percent higher per user and place three times as many bets compared to bettors that don’t have the app while generating a 91 percent increase in 30-day retention.
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