The Stars Group & Flutter Entertainment

Bull Strategic Move to Globally Scale Across Regions For Both Parties — Horizontal Merger Teaching Material

  • Flutter Entertainment is merging with The Stars Group with 54.6/45.4 respective ownership, valuing The Stars Group at $9 billion.
  • Flutter provides The Stars Group with capital resources and product diversity whereas The Stars Group have given Flutter the access to the North American market
  • The combined group would have more than 13 million active customers in more than 100 international markets

The global online betting and gaming market is growing at a CAGR of 11% in the past five years but still remains at an infancy life cycle as online gambling has only represented 11% of total gambling spend globally. In the 44 billion online gambling market, over 62% belong to the North America whereas the United Kingdom and Ireland have only represent 22% altogether.

The online betting and gaming market players consist of a mix of technology solution companies and land-based gambling giants. The nature of high barrier of entry and strong customer retention have led to a competitive landscape of a handful of competitors including GVC, GameCo, Head InfoTech and Playtika. The key performance indicators are the number of active users, acquisition cost per user, geographical coverage and amount of customer deposits.

The Stars Groups

The Stars Group (NYSE: TSG) provides digital Business-to-Consumer gambling products and services as it operates in two reportable segments: Business-to-Consumer (B2C) and Business-to-Business (B2B). B2C consists of Rational Group, while B2B consists of Co.’s B2B interactive gaming solutions, land-based gaming solutions, and lottery solutions. Rational Group owns and operates gaming and related businesses and brands including Full Tilt, SkyBet and the world largest poker online site, Pokerstars. The B2B operation is engaged in the design, development, manufacturing, distribution, sale and service of technology-based gaming solutions for the regulated gaming industry worldwide, primarily to land-based and online gaming operators. As B2C segment has take over 97% of the revenue.

The Stars Group Q3 2019 Report

The company’s revenue is evenly distributed between Poker, Gaming and Betting which represents 31%, 31% and 35% of the total revenue. International segment which includes digital revenue owns 66%, then United Kingdom and Australia both occupy the rest of 30% and 4%. In 2019, the synergies from acquiring Skybet has incurred as cost margins have gotten down and EBITDA margins has increased from 16.7% to 33.9% from Q3 2018 to Q3 2019. Operating cash flow has provided positive signs as it has increased from 369 million to 480 million with 62 million paid for income tax, which implied a 2.3x operating cash flow to interest coverage.

Flutter Entertainment

Flutter Entertainment (LON: FLTR), which owns Irish gambling firm Paddy Power is a global sports betting and gaming operator powered by our in-house technology, trading, development and responsible gambling teams. Flutter Entertainment strategizes by integrating technology to make gambling and gaming more accessible than ever. Flutter Entertainment owns gambling sites which including Paddy Power, Betfair, Sportsbet, Adjarabet, FanDuel and TVG, predominating operating in the UK and Ireland, which minor operations carried out in Australia and United States, similar to The Stars Group.

With over 6.5 million active customers Flutter Entertainment is able to generate a sustainable profit with 217.7 and 180.7 million from 2017 and 2018. Given 68% of the revenue was generated from Ireland and Britain, while the other segments have struggled to enter the market due to the high switching cost of online gambling platforms. Most of the cash generated was used in buybacks and paying out dividends, which reflects a low debt-to-equity ratio and represents great liquidity as it does not carry any long-term debt. Investors have argued that paying dividends is an ineffective way of spending because of its well-leveraged technology could be profitable if Flutter is able to expand globally.

Expected Outcome

Flutter will hold 54.6% on the enlarged group, while Stars Group will own 45.4%. Management is also predicting that around £140m of costs could be removed from cost synergies. The expected income will draw a bigger and more evenly-distributed geographical segments, which enhance profitability and international growth.


The primary driver of the merger is primarily the identical fit among the companies as they operate a really similar business model and own a significant amount of users. The combined group would have more than 13 million active customers in more than 100 international markets, allows them to be the predominant player in the online gambling market.

Secondary, the capital structure of both companies are the exact opposite where Flutter Entertainment has excess cash and finds their UK market slowing down, The Stars Group is capturing a high growth market in the United States whereas it carries 5 billion dollars of debt (50% of assets). The merger is able to resolve or at least dilute The Stars Group’s highly leveraged capital structure and generate greater growth for investors.

However, the implication behind the merger is beyond economical reasons. In October, a little twist happened as UK Antitrust regulator, Competition and Markets Authority (CMA) has filed an investigation towards its monopoly act because the combined entity would occupy over 40% of the UK sports-betting sector and 26% of the overall online gambling sector. Although it eventually gets through but UK authority would be keep an eye on online gambling regulation and prevent it monopolizing with taxations and licensing.

Also, drivers of the industry growth also relies on intergeneration habits changes, the merger presumed teenagers preferred online gambling attributed to their technology-friendly traits and growing numbers. The market might not adapt to management’s expectation in addition to external forces like cyclical effect and indirect competition from land-based gambling companies.


The mega-deal between The Stars Group and Flutter Entertainment manifested a strong strategic implication whereas competitors merge together to create a larger pool of users/gamblers. Therefore they were able to grow organically and internationally, their respective capital structure provides a great fit to each other as it would become a greater use/source of capital than the alternatives(external financing).

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