[Update 5-5-22 – The acquisition has now been completed].

Golden Nugget Online Gaming (GNOG), based in Houston, has agreed to be acquired by DraftKings for $1.56 billion in an all-stock merger. Both companies were taken public last year by SPACs or blank check companies.

GNOG was spun out of Landry’s, the restaurant and casino business and was taken public by Landcadia Holdings II in December 2020. All three businesses were effectively controlled by Tilman Fertitta.

Landcadia II first announced that it would take GNOG public in June 2020. It gave the business a proforma enterprise value of $745 million, which was 6.1x projected 2021 revenues. In its investor presentation at the time, Landcadia II stated that this multiple was considerably lower than DraftKings (15.2x) and GAN, another online gambling company (12.9x).

When Landcadia II closed on the deal in December, the stock price rose to $22.55 on its first day of trading and peaked at $27.18. Since February, the stock has been bouncing around the mid-to-low teens. DraftKings has agreed to pay $18.83 per share. It valued GNOG at 7.6x 2022 projected revenues.

The Landry’s business is part of Fertitta Entertainment (FEI). Mr. Fertitta is in the process of taking this business public via a SPAC (FAST Acquisition). DraftKings and FEI have entered into an extensive commercial agreement which will enable the companies to cross-sell to each other’s customer bases.

Mr. Fertitta also owns the Houston Rockets. This is not part of the FEI business going public. However, Mr Fertitta’s ownership means that GNOG can’t take some NBA bets due to regulatory issues. The sale to DraftKings eliminates that hurdle.

The deal is expected to close in the first quarter of 2022.

In a casino, punters generally lose, and the house always wins. In this case, Mr. Fertitta is the house.

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