Fred Done’s bookie empire is weighing up a possible purchase of evoke’s William Hill retail estate, according to multiple sources familiar with the matter.
Discussions are still in the exploratory phase, with no final decision having been made. NEXT.io understands a potential deal would likely be limited to the retail portfolio, and not the online business.
It comes as evoke fights for survival amid a £2bn debt pile largely tied to its own acquisition of William Hill’s non-US assets from Ceasars Entertainment in 2022.
The UK Government’s decision to dramatically hike gambling taxes in the Budget has further put the company’s future in doubt.
These factors have led to the operator launching a strategic review in December that is expected to result in the break-up of the business in some capacity.
In a statement to the market, evoke said at the time: “The board of directors of the company confirms it has decided to undertake a review of the Company’s strategic options, which will include the consideration of a range of potential alternatives to maximise shareholder value, including, but not limited to a potential sale of the group, or some of the company’s assets and/or business units.”
Evoke debt pile could scupper deal
One source familiar with the discussions said evoke assets are being shopped around, with Betfred being the only UK operator that makes sense on paper as a buyer of its vast retail estate.
They said: “Who’s got the synergies to make a shop deal work? Fred and only Fred. It makes a ton of sense because economies of scale really matter in retail.”
William Hill’s strong and diverse retail estate was highlighted as a key driver, with Betfred’s representation in London and the South-East having been historically considered something of a weakness for the Warrington-based bookmaker.
“Fred runs shops well and will know there’s £20-30m of costs that they can probably find and rip out just by being more Fred about things,” said the source.
However, despite some obvious synergies, experts believe any possible deal could face several significant hurdles that will be difficult to overcome.
Done’s no-nonsense approach to business was highlighted as a potential sticking point as he would be unlikely to pay a premium for the portfolio.
The structure of the deal to split retail from online would also kill evoke’s overarching omni-channel story that it has sold to investors. This could potentially devalue the online business, which it cannot afford given challenging current circumstances.
Bally’s to battle tax headwinds with M&A?
A simultaneous sale of the online business could be a potential solution to that issue. A report in the Greek press this week revealed Bally’s Intralot was plotting market share gains via M&A in the UK and was engaged in discussions with “an historic betting brand on the island looking to reduce high debt”.
Meanwhile, the sheer size of evoke’s debt, currently standing at 5.0x EBITDA, means any deal must involve a premium for retail, way beyond any historical “old money” transactions like Entain’s purchase of Ladbrokes-Coral.
One industry source pointed out that any multiple paid above 3-4.0x EBITDA would essentially mean any turnaround story profits as a result of achieved cost savings would already be lost in the initial purchase price, therefore defying the logic of the deal in the first place.
The source said: “Why would Fred do that? They’re infamously tight. Infamously wily.”
Another source added: “The big challenge [for evoke] is that retail is actually quite cash generative. So, unless they got a very premium multiple, you’re actually not doing much in terms of your ability to service your debt.
“I would have thought selling retail on its own, unless it’s at a very attractive multiple, is going to be difficult [for evoke].”
Competition could complicate things
Another problem to solve is the actual physical location of the betting shops when compared to one another, in terms of local competition. A sub-deal with another mid-sized operator could offer a potential solution, as could closing the shops, but both would bring even more complexity and cost.
Evoke’s share price has climbed significantly in recent days, rising close to 20% from 12 January and up 33% through the month.
One analyst, who spoke to NEXT.io on condition of anonymity, said the evoke share price spike reflects the rumours swirling among investors over possible M&A. However, they cautioned the improvement had come from a very low base.
Both Betfred and Bally’s declined to comment further when contacted by NEXT.io.
