PokerStars Bought By Amaya: Anatomy of A Massive, Rapid Deal

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When the Amaya / PokerStars deal was first announced, the target closing date was the end of September.

The deal is now done – nearly two full months earlier.

I’d previously suggested that the deal would come in a week or two early, but rarely has a multi billion deal gone so smoothly and come in so far ahead of schedule.

Making it easier

This deal was helped by a few factors.

First, and most importantly, we had a willing buyer and a willing seller.

Now some of that was likely down to regulatory change, but PokerStars’ founders and investors wanted cash and Amaya wanted the business. The price worked for both parties and hands were shook.

Second, both main parties are professional.

The buyer made an offer that they could fund and the seller had been honest about what was being sold. There were no nasty surprises in due diligence, just as we would expect given PokerStars ability to refund post-Black Friday.

Third, neither party started trying to change the deal after the handshake.

So why did it take as long as it even did?

As usual, the big barriers were:

  • Securing the finance.
  • Getting shareholder approval.
  • Getting regulator approval.

For the Project Manager driving the deal it is the last one that is on the critical path and the real risk to the timeline. But let’s take each in order.

Securing the finance

$4.9bn dollars is hard to find.

In this deal some came from new shares and the rest is borrowed.

The new shares are really more a shareholder approval issue but the borrowing, that is down to the investment bankers selling the debt. The bankers get paid well to do this and the terms look perfectly normal.

Borrowing at LIBOR plus 4% or LIBOR plus 7% is again a win-win-win. The bankers make money selling it, the investors like the terms and Amaya get the cash.

It is far from cheap money, but the seller wanted cash. And part of the reason for the deal was regulatory pressure for a complete break with the past ownership in order to access the US market and that needs cash for a clean exit.

Getting shareholder approval

This was an essential. Had to happen or no deal – but there was no rebellion.

An agreed takeover is most unlikely to be refused by shareholders. It means rejecting the management strategy of the firm, in which case the sell button is the obvious answer – not a voting rights challenge.

For our poor Project Manager shareholder approval is a must-have milestone but within hours of the announcement of the proposed deal it was a sure thing. There was no share price crash – no rebellion.

Getting regulator approval

Here is the Project Manager’s nightmare.

You have a timeline but you are dealing with government and bureaucracy. You are dealing with people outside your organisation, which is true for the financiers too but the financiers are being paid to work for you.

The regulators are nothing to do with your firm, you do not pay them, they have no financial incentive to do the deal they are completely outside your control and generally do not share your sense of urgency.

And here PokerStars played a great game.

The day of the announcement they were in to meet their main Isle of Man regulators and had the message down pat. The deal is not a threat to local jobs, they are not relocating, they are committed to being regulated by the Isle of Man, the local charity works and jobs are safe.

Absolutely perfect execution of risk managing the deal with their main regulator by bringing them onside at the outset. Now trying to do that is a no brainer, doing it well is what we would expect from PokerStars – acting professionally and using existing relationships within the small community they located in.

As for the regulators in France, et al., dealing with a listed firm instead of a private firm, not dealing with Isai Scheinberg’s outstanding US indictment – all good news. Bottom line: The deal reduced risk for most regulators.

Crucially the European regulators signed off before August.

Now I don’t want to collapse into Gallic stereotypes but if you want to get any sort of deal done that involves public officials, politicians, regulators or bureaucrats to agree to it, avoid August in the UK or Europe.

It may be different in the US, but in Europe August is a Project Manager’s nightmare. They just cant get anything done in August the people they need to agree the deal are not there.

Two things nag at me

When the Harvard Business School write up of the deal is published there is a chance that it gets written up as the perfect deal. The banker, the  buyer, the seller and the regulators all come out winners. It was certainly executed well and efficiently.

Two things nag at me though. The first is minor, but the second matters to every poker player.

David Baazov – Amaya Chairman and CEO

This deal comes branded very much as a David Baazov-driven affair. And the resulting coverage has cast Baazov as something of a corporate superstar in the iGaming realm.

I have no reason to doubt him or his abilities. But here in the UK we have a natural suspicion about such personal promotion within a deal. We also have a corporate governance code that says the Chairman should not also be the CEO, as David is.

This point is admittedly minor. But it could affect a future listing in London and can affect institutional investors based in the UK, where having a joint CEO/Chairman is a clear black mark against a firm.

Follow the money

For me, the main issue with the is the potential impact upon players of changing ownership.

In the past when PokerStars made money it was ploughed back into the business.

Now, much like the Glazer deal for Manchester United, the revenues need to service the debt first.

  • $1.75 billion seven-year first lien term loan priced at Libor plus 4.00%
  • €200 million seven-year first lien term loan priced at Euribor plus 4.25%,
  • $800 million eight-year second lien term loan priced at Libor plus 7.00%

Paying the interest and over time paying down the debt is perfectly possible but it comes from revenues generated from poker players. And, as Amaya broaden the offering to casino and sports, betting from those revenues too.

This change with money leaving the poker world to pay investors is a significant change – not just financially but also to the culture of PokerStars.

Time will tell if it was the perfect deal. But so far the group most likely to find it was not are the poker playing customers who were the number one priority but now slip behind the bankers and owners.

- Follow Richard on Twitter or via his posts on TwoPlusTwo.
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