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B2B gaming supplier Inspired Entertainment has acquired Sportech subsidiary Sportech Lotteries in a $12.5m all-cash deal with a potential additional earnout consideration of up to $2m.

Inspired acquired the business on a cash free/debt free basis, using cash from the business’ balance sheet.

Sportech Lotteries’ principal asset is the lottery systems contract to provide online and retail lottery services to the Dominican Republic’s Loteria Electronica Internacional Dominica S.A. (LEIDSA).

The current lottery systems contract with LEIDSA had been scheduled to run until March 2025, however together with the closing of the Sportech Lotteries acquisition, Inspired and LEIDSA have extended the contract for a further 10 years, until March 2035.

In addition to its contract to provide online and retail lottery services to the operator, Sportech Lotteries is in the process of launching its omni-channel iLottery solution, Lot.to, with LEIDSA, which is expected to launch digital lottery sales on the platform during 2022.

The $12.5m price tag represents around 4.0x Sportech Lotteries’ $3.1m adjusted EBITDA figure for the 12 months ended 30 June 2021, or 3.5x the business’ pre-pandemic $3.5m EBITDA reported for calendar year 2019.

Inspired said the deal, which is its first acquisition in the lottery sector, would diversify the company’s business model on a product, customer and geographic level.

In addition to providing the business with a presence in the Dominican market, Inspired said it expects the acquisition to provide additional growth opportunities in North America, bolster its position in the iLottery market, and enhance its ability to offer a platform with a full turnkey lottery and iGaming solution to new customers in the future.

“This acquisition accelerates our entry into the lottery business, where, as a management team, we have extensive collective experience and long-standing relationships,” said Lorne Weil, Inspired’s executive chairman. 

“We expect to build on Sportech’s established lottery supply contract to increase our scale and scope within the lottery and gaming ecosystem.

“We are excited to enhance the value proposition we provide to operators and consumers as we seek to realise on significant opportunities in the sector,” he added. 

Peel Hunt analyst Ivor Jones said: “This disposal puts Sportech in a position where it could consider a further return of capital in due course.

“However, Covid-19 cases are increasing in Sportech’s core Connecticut market and we would not expect a capital structure decision until later in 2022,” he added.

The investment brokerage has reiterated its Buy rating for Sportech stock and 50p target price.

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