New York-based Hydra Industries Acquisition Corp. (NASDAQ: HDRA, HDRAU, HDRAW, HDRAR), a blank-check special purpose acquisition company, agreed to acquire London-based Inspired Gaming Group from British private equity firm Vitruvian Partners LLP and its co-investors, for an enterprise value of £200 million ($264 million), including the assumption of the company’s debt.
The deal comes only days after leading online gambling and sports-betting software company Playtech (LSE: PTEC), controlled by Israeli billionaire Teddy Sagi, acquired rival Austrian Best Gaming Technology GmbH for €138 million, in a further sign of industry consolidation.
The cash component of the transaction will be funded by a $20 million private placement from Macquarie Capital in addition to Hydra’s $80 million in cash in trust. The balance of the acquisition price will be paid in Hydra common shares to be issued at a price of $10.00 per share.
Assuming none of Hydra’s shares are redeemed for cash in trust, the sellers would retain 35% ownership at closing. Certain liabilities of Inspired, including existing credit facilities, are expected to remain in place at closing.
Vitruvian acquired Inspired Gaming (formerly Bass Leisure Machine Services) for £134 million and took the company private in July 2010.
Inspired is a global games technology company, supplying virtual sports, mobile gaming and server-based gaming systems with associated terminals and digital content to regulated betting and gaming operators around the world. Inspired currently operates more than 25,000 digital gaming terminals and supplies its virtual sports products in more than 30,000 venues and on over 200 websites in 30 countries. Inspired employs over 800 employees in the UK and elsewhere, developing and operating digital games and networks.
Inspired’s fiscal year end September 2016 revenue and EBITDA are estimated at $110 million and $38 million, respectively, with the potential to grow meaningfully, driven by a backlog of recurring revenue contracts, Hydra said.
Hydra was founded by gaming industry veteran Lorne Weil, the company’s CEO, and raised $80 million on October 29, 2014 in its IPO. Upon closing of the acquisition, Weil will become executive chairman, while Inspired’s founder and CEO Luke Alvarez will continue in his role, in addition to becoming a board member.
“We are excited to have the opportunity to partner with Luke and his team as we work together to grow the digital business through increased focus and the deployment of new technology and content,” Weil said.
“We are excited to be partnering with Lorne Weil and Hydra, while continuing our strong relationship with Vitruvian, ” said Alvarez. “Lorne’s history in the gaming industry and Hydra’s access to the public capital markets are the perfect combination to take Inspired to the next level.”
“We have enjoyed a strong and productive partnership with the management team at Inspired and are delighted to support this transaction, which will facilitate access to capital markets and support the Company in the continued build-out of its market-leading positions,” said Vitruvian partner Philip Russmeyer.
The proposed transaction has been unanimously approved by the boards of directors of both Hydra and Inspired, and is expected to close in October 2016, subject to approval by Hydra’s shareholders, required regulatory approvals and other customary closing conditions. Immediately after the closing, Hydra intends to change its name to Inspired Entertainment, Inc. and will continue to trade on NASDAQ under the ticker INSE.
Macquarie Capital acted as M&A Advisor to Hydra. Kramer Levin Naftalis & Frankel LLP and Mishcon de Reya LLP acted as legal counsel to Hydra. Morgan Stanley acted as M&A Advisor to Inspired. Dickson Minto W.S. and Willkie Farr & Gallagher LLP acted as legal counsel to Inspired. Management was advised by Pinsent Masons LLP and Proskauer Rose LLP.
Vitruvian is an independent European private equity firm that invests in companies characterized by rapid growth and change, including buyouts and growth capital investments. Vitruvian is currently deploying VIP II, a £1 billion fund, and has offices in London, Munich and Stockholm, as well as a presence on the U.S. West Coast and in China. Target sectors include technology and internet, financial and business services, life sciences and healthcare, media and telecoms.