Sun International bets on Peermont acquisition
● Sun International is considering setting up a separate business to house smaller hotel and casino assets to focus on cash-generating operations once it completes the acquisition of the Peermont group, whose flagship property is Emperors Palace.
The acquisition is expected to significantly boost Sun International’s online betting business.
This week, the owner of Sun City, Meropa Casino, Table Bay Hotel and The Maslow Hotel announced it had agreed to buy Peermont, a smaller hospitality and entertainment group, for R7.3bn.
Sun International is targeting at least 10% of market share in the online betting industry following a record performance by its SunBet platform in the half year to June, driven by the inclusion of traditional casino live games and slot machines.
Sun International said the acquisition will increase the contribution of land-based and online gaming revenue for the combined group. There is an opportunity to leverage off the SunBet management team’s expertise to grow the online and sports betting business by extending the group’s cross-marketing strategy across the customer base. Peermont runs an online sportsbook, PalaceBet, which provides live casino games, slots and sports betting.
Sun International CEO Anthony Leeming said having access to the customer database will help the online business to grow. “They do have a strong customer base. Our online business is still fairly small while they are doing quite nicely.”
Founded in 1995, Peermont operates 3,349 slot machines and 152 gaming tables. It also has 1,636 hotel rooms in South Africa and Botswana. Its hotels and casino operations include Rio Hotel in Klerksdorp, Graceland in Secunda, Frontier Inn in Bethlehem and Khoroni in Thohoyandou.
The largest casino in the Peermont stable is Emperors Palace in Kempton Park. With its proximity to OR Tambo International Airport, Emperors Palace offers a gateway to high-net-worth customers from the rest of Africa and abroad, Sun International said.
“This customer base will drive opportunities for synergies with the rest of the group’s operations, including hotels and resorts, as well as the online sports and gaming business, creating large-scale benefits for Sun International, ” it said in a statement.
Sun International generates 78% of its income from the gaming business.
Denker Capital equity analyst Muneer Ahmed said “it is a good acquisition”.
“They are not getting it at a bargain but it appears to be a fair valuation. Emperors Palace is the prized asset here.”
This is the second time Sun International is making a move on Peermont.
In 2015, the Competition Commission blocked the deal, saying a merger would result in increased concentration levels in an already highly concentrated industry. The central Gauteng gambling market would have been left with just two competing companies — Sun International and Tsogo Sun. This could have led to Tsogo Sun and Sun International co-ordinating their behaviour to the detriment of consumers, the commission ruled at the time.
Tsogo Sun’s businesses include Monte Casino, Gold Reef City and Sun Coast.
“I’m uncertain why it would be viewed differently this time,” said Ahmed.
Leeming said there is no significant competition between the casinos but “we understand the Competition Commission also has a public interest. And in that respect, we have agreed to certain concessions that they might ask for, such as the level of empowerment, and employment. There won’t be retrenchments. ”
The addition of Peermont’s casinos and hotels to Sun International’s portfolio “will enhance the quality of earnings and cash flow generation of the group. This is consistent with the group’s strategic intent to focus its portfolio on large urban casinos with the ability to drive value-enhancing strategies across smaller regional assets and online growth. ”
Once the deal is complete, the company will decide what to do with some of Peermont ’ s smaller assets.
“We will reconsider once we finalise the acquisition. We have some really big assets which contribute significantly to earnings and we’re going to need to look at where we should put our primary focus. Maybe it might be better to create a separate group, maybe an empowerment entity to house some assets, but that decision hasn’t been made, ” said Leeming.
Leeming said the group was concerned about a decision Peermont took before the acquisition to move its Mmabatho Palms Hotel Casino and Convention Resort from Mahikeng to Rustenburg in North West, where it would directly compete with Sun City.
“We are objecting to that because it impacts Sun City, but we can’t stop them. On implementation of the deal we will see what we do.”