Axios: FanDuel May Be Acquired Soon
According to a report from Axios this week, daily fantasy sports site FanDuel may go public, but via acquisition, not an initial public offering (IPO).
Sources tell Axios that Platinum Eagle Acquisition Corp. is on the verge of buying the second largest DFS site in what is being called a “reverse merger,” though according to my extensive processing of the Google machine, this isn’t really a reverse merger.
A reverse merger, according to some obscure website called Wikipedia, is when a private company acquires a public company so that the private company can go public without going through all the rigmarole of the IPO process.
In the FanDuel situation, Platinum Eagle (NASDAQ: EAGL) is the public company and FanDuel is the private company. The public company is acquiring the private company, which is not a reverse merger. But whatever it is, it would result in FanDuel being owned by Platinum Eagle.
Now I bet you are wondering what the heck Platinum Eagle Acquisition Corp. is. Well, it’s a special purpose acquisition company (SPAC), formed in January 2018 by Jeff Sagansky. And now I bet you’re wondering what the heck a special purpose acquisition company is. Well (again), it’s basically a public company that exists just to purchase private companies. And that’s what Platinum Eagle is reported to be doing with FanDuel with as much as $325 million it raised via an IPO in the middle of January.
Of course, we don’t know how much Platinum Eagle will be paying for FanDuel, but $325 million is certainly a decent guess, considering that’s how much money the company raised. At the time of the IPO, Sagansky said in a statement:
….we will continue to look for companies where we can add value based on our experience, particularly media and entertainment companies that can benefit from the digital disruption that has transformed the business on a global basis. As always, we will target fast-growing businesses that can benefit from a Nasdaq listing, access to capital, and experienced sponsors.
In November 2016, FanDuel announced that it was working on a merger with rival and daily fantasy sports industry leader DraftKings, but the companies cancelled the deal in mid-July. They were challenged by Federal Trade Commission (FTC) and the attorneys general of California and Washington, D.C., who sought a preliminary injunction to stop the merger on anti-trust grounds, and that threat was serious enough to have worked. The prevailing thought was that the two companies did not want to spend the money it would have taken to defend themselves against lawsuits.
“This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel,” said Acting Director of the FTC’s Bureau of Competition Tad Lipsky in a press release when the injunction request was filed. “The FTC is committed to the preservation of competitive markets, which offer consumers the best opportunity to obtain innovative products and services at the most favorable prices and terms consistent with the provision of competitive returns to efficient producers.”
Combined, FanDuel and DraftKings control more than 90 percent of the daily fantasy sports market.
Some believe that there was more to the deal falling apart, though.
“The timing of the withdrawal from the merger appears to indicate that there is more behind the decision than cost savings,” said Ifrah Law attorney Rachel Hirsch. “Perhaps these companies were worried about the information that would be revealed at the [preliminary injunction] hearing and how that would tarnish their brands.”
FanDuel didn’t say all that much of interest when it announced the merger talks were at an end. Nigel Eccles, FanDuel’s CEO at the time, said that they pursued the merger “….because we believed that this deal would have increased investment in growth and product development thereby benefiting consumers and the greater sports entertainment industry.”
FanDuel stated its fully-diluted value was $1.2 billion during the merger talks last year, but seeing as Platinum Eagle raised $325 million, it does not look like FanDuel will get anywhere close to what it thought it was worth last year. That’s not necessarily a problem, as one of Axios’ sources does not think FanDuel’s investors are using this reverse merger as a way to cash in. Instead, the acquisition may be for the purpose of raising money for the DFS company so that it can try to leapfrog DraftKings as the top player in the industry.