FanDuel endgame

Flutter (the renamed Paddy Power Betfair) has agreed and completed the buy out of the remaining Fanduel shareholders for $4.18 billion

The interests of these shareholders, led by private equity firms KKR and Shamrock, had been collected into an umbrella company called Fastball.  The Times reports that they will net a profit of $3.7bn.

The agreed price consisted of $493.04 in cash now, plus 2.78 Flutter shares for every Fastball (Fanduel) share.  These Flutter shares are restricted to being sold in tranches; 20% by March 2021, 50% by June 2021, and 100% by December 2021.

The two early Scottish investors, Pentech and the (matching) Scottish Co-Investment Fund are both receiving approximately $90 million, ie $45 million in cash now, and then $45 million in Flutter shares during 2021.  Their original investment is estimated to be around $8 million each.

Fanduel started life in November 2007 in Edinburgh, as HubDub, an online game in which users predicted the outcome of running news stories.  The company pivoted in 2009 to its fantasy sports model, and secured funding from Piton Capital and Pentech.  It went on to attract funding from US VCs, and in July 2015 completed an investment of $275m, led by KKR with Google Capital and Time Warner as co-investors, a record for the UK at the time.

In 2017 a planned merger between FanDuel and fantasy sports rival DraftKings was called off, after the Federal Trade Commission, the US competition watchdog, signalled its opposition to a deal that would have given the combined company a 90% share of the American market for daily fantasy sports wagers.

YCF reported in May 2018 that FTSE 100 group Paddy Power Betfair was acquiring FanDuel, following the sudden lifting of a federal ban of sports betting across the United States.

Paddy Power Betfair said it would combine the US assets of its Betfair brand worth $612m with New York-based FanDuel, as well as provide a further $158m in cash, which would enable FanDuel to pay down its existing debt of $76 million.  On completion, Paddy Power Betfair was to own 61% of the combined business and take operational control, and able to increase its ownership to 80% after three years and 100% after 5 years via call and put options at the prevailing market valuations.

The acquisition was an all-share deal (no money changed hands at that time), but the enterprise price of Fanduel was agreed at $585m, almost exactly the amount that eliminated all the ordinary shares.  The VCs who owned 91% of the company took 100% of the proceeds and wiped out the founders, employees, and early EIS investors.

Founders Nigel and Lesley Eccles are leading a case against the PE investors in the New York courts, contesting the $585m valuation of the business at the time of the Paddy Power Betfair acquisition.  As the final exit valuation of the Fanduel business was $11.5bn, less than three years after the $585m valuation, the case appears to be very strong.

 

Written by Published: 30/03/2021 News

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