Shares of JPJ Group PLC were up nearly 6% on June 13 after the online casino and gaming company announced that it has agreed to acquire Gamesys Ltd. in a cash-and-stock deal worth £490 million.
Under the agreement, Gamesys shareholders will own about 31.1% of the merged company, which will be named Gamesys Group PLC and qualify for the FTSE 250 index.
Gamesys CEO Lee Fenton and COO Robeson Reeves will lead the combined entity as CEO and COO, respectively, and will join JPJ's board of directors. JPJ Group Managing Director Simon Wykes will serve as transition director to the new company for a 12-month period following the deal's completion. Gamesys Group is expected to have an employee base of more than 1,000.
Under the deal, JPJ will acquire the U.K.-based software developer's branded sites such as Virgin Games and Virgin Casino, Heart Bingo and Monopoly Casino; its bingo games content; Gamesys' business technology platforms; and its back office and operations services. The acquisition does not include Gamesys' Virgin Bet sports betting business, its Livescore sports data and media unit, as well as its non-bingo games studio and supply business.
JPJ believes that Gamesys acquisition will help improve profits, cut costs, diversify its brand portfolio and offer a platform for international growth, including in the U.S. market.
"For shareholders, we expect the Acquisition to deliver earnings accretion in the first full financial year of ownership, while our employees will benefit from the combination of two companies with a strong commitment to responsible gaming and where the greater scale will further enhance our product development and technology capabilities," Neil Goulden, executive chairman of JPJ, said.
In the first full year following the acquisition, the board of JPJ anticipates that it will accrue double-digit growth to its EPS and incur cost savings of "single-digit millions" pounds. It expects the deal to reduce the company's accommodation costs, streamline its U.K. operations and cancel the internalization process.
Additionally, the acquisition will help reduce JPJ's reliance on third-party providers.
JPJ was previously planning an operational partnership with Gamesys to support its acquisition of the latter's Jackpotjoy, Starspins and Botemania brands in 2015. The "internalization" plan involved JPJ onboarding operational staff from Gamesys. The company said its plan to instead go ahead with a full merger ensures full strategic alignment, business continuity and minimization of execution risk.
"This is a strategically important transaction that adds scale and combines complementary capabilities as the competitive and regulatory environment continues to evolve," Gamesys' Fenton said.
The total consideration comprises an initial £240 million in cash, another £10 million payable 30 months after the deal closes, and 33,653,846 JPJ shares worth nearly £240 million, calculated from a 30-day volume-weighted average price of 713 pence per ordinary share of £0.10 each. The acquisition represents an estimated multiple of 7.3x adjusted EBITDA for Gamesys for the 12 months ending December 2018, JPJ said.
The transaction is expected to close in the third quarter of 2019, subject to JPJ shareholder approval, customary regulatory conditions and the reorganization of Gamesys Group.
JPJ has agreed to pay Gamesys a break fee of £4.5 million if the merger agreement is terminated.
To finance the deal, JPJ is raising £175 million through an additional term loan facility under its existing senior facilities agreement with Macquarie Corp. Holdings Pty. Ltd. (UK) and Nomura International PLC.