Aristocrat (ASX:ALL) share price jumps 8% to record high after raising $895m

This gaming technology company is making a major acquisition…

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The Aristocrat Leisure Limited (ASX: ALL) share price has returned from its three-day trading halt and is storming higher.

At the time of writing, the gaming technology company’s shares are up 8% to a record high of $49.39.

Why is the Aristocrat share price rising?

The Aristocrat share price is rising today after announcing the successful completion of the institutional component of its $1.3 billion entitlement offer.

According to the release, the company has raised approximately $895 million at the offer price of $41.85 per new share. This represents an 8.6% discount to its last close price.

Management advised that the offer was strongly supported by institutional shareholders with a take-up of approximately 92% by eligible institutional shareholders.

Furthermore, a bookbuild for Institutional Entitlement Offer shortfall shares was completed on Wednesday. The bookbuild cleared at a price of $47.10 per new share, which represents a premium of $5.25 to the offer price. This is also a 2.8% premium to the Aristocrat share price prior to its trading halt. Which demonstrates just how positive investors are about its plans for the funds.

Why is the company raising funds?

The company launched its entitlement offer on Monday to raise funds for the proposed acquisition of London-listed leading global online gambling software and content supplier, Playtech, for an enterprise value of $5 billion.

Playtech has two key business segments: Business-to-Business gambling (B2B) and Business-to-Consumer gambling (B2C).

The company’s B2B gambling operations include the design, development, and distribution of software and services to the online and land-based gambling industry. This covers all key online real-money gaming (online RMG) segments, including casino, live casino, poker, bingo and sports betting, monetising via a revenue share model.

Whereas Playtech’s B2C gambling operations predominantly consists of Snaitech (Italy). It is a vertically integrated retail and online business leveraging Playtech’s proprietary technology and capabilities. Management notes that as a leading Italy-based multi-channel gaming operator, it is free of any meaningful channel conflict with Aristocrat’s existing operations. Other B2C brands include HPYBET and SunBingo. HPYBET is Playtech’s retail sports betting B2C business, operating sports betting shops in Austria and Germany.

The release notes that Playtech is highly profitable. In FY 2019, for example, Playtech’s revenue on an adjusted basis was $2.3 billion and its EBITDA was $586 million.

What has been the reaction to the acquisition plan?

The team at Morgans were pleased with the news. In response, the broker reiterated its add rating and lifted its target on the Aristocrat share price to $52.90.

The broker notes that the deal will expand the company’s total addressable market materially thanks to the growing global online RMG market.

It commented: “The proposed acquisition will give ALL instant scale and capacity to grow in the global online RMG space, an US$70bn market forecast to grow substantially in the years ahead as the US market opens up. It expands and diversifies ALL’s total addressable market from a $230bn market comprising land-based gaming and mobile games, to a $300bn market that will now include online RMG (iGaming and online sports betting). Playtech will provide a platform for ALL to leverage its content across new distribution channels and in new markets.”

This goes some way to explaining why the Aristocrat share price is rising despite its significant capital raising.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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