Churchill Downs Reels in a Mobile Strategy With Big Fish Games

Casino and racetrack operator Churchill Downs Inc. (CHDN) said Wednesday, Nov. 12, that it has agreed to acquire privately held online and mobile gaming company Big Fish Games Inc. for up to $885 million.

The deal gives Louisville, Ky.-based Churchill Downs, operator of the Kentucky Derby, entry in the fast growing online and mobile gambling space.

Seattle-based Big Fish, founded in 2002, has a library of about 3,950 online and mobile games. The company, which has around 560 employees, is known for its Big Fish Casino, Dark Parables and Gummy Drop! titles and averages about 1.15 quarterly million paying users.

"The acquisition of Big Fish and our entry into the rapidly growing mobile and online games industry gives us new products, new customers, new geographies and new sizeable growth opportunities," said Churchill Downs CEO Bill Carstanjen in a statement.

"I think we need to go big and add scale if we want to grow in this space," Carstanjen added during a Thursday morning conference call.

Carstanjen said during the call that Big Fish did not run an auction process and the acquisition was a result of talks that began a few months ago.

Churchill Downs will pay $485 million upfront and up to an additional $350 million in an earnout. In addition, Big Fish founder and CEO Paul Thelen is entitled to be paid up to $50 million if the target reaches at least $1 billion in bookings in 2016. The target had about $278 million in bookings in 2013.

The $485 million upfront payment represents an 8.5 times Ebitda multiple, based on the target's $57.3 million in Ebitda for the trailing 12 months ended Sept. 30.

Thelen will be paid $15 million in common stock. Churchill Downs will fund the rest of the purchase price in cash. The buyer will use a new $200 million term loan and draw from its $500 million credit facility. JPMorgan Chase Bank NA is leading the financing.

Churchill is latest company to pay a large sum for mobile gaming assets. Last year, Japan's Softbank Corp. teamed up with GungHo Online Entertainment Inc. to buy a majority of Finnish tablet computer game maker Supercell Oy for $1.53 billion. In January, San Francisco games developer Zynga Inc. spent $527 million in cash and stock to buy mobile games specialist NaturalMotion Ltd. In September, Microsoft Corp. announced it reached an agreement to acquire Mojang AB, the Stockholm-based developer of the "Minecraft" franchise.

Churchill Downs has been an active buyer in the last few years. In October 2012, the company paid $141 million for the Riverwalk Casino and Hotel in Vicksburg. In April 2013, it acquired the Oxford Casino in Oxford, Maine for $160 million.

Churchill Downs expects to complete the acquisition by year's end. Big Fish will remain an independent company after close.

Goldman, Sachs & Co.'s Scott Smith, Guy Nachtomi and Avi Mehrotra advised Churchill Downs. Sidley Austin LLP provided legal counsel.

Qatalyst Partners LP and Perkins Coie LLP advised Big Fish.

Churchill Downs shares opened 50 cents higher, to $105.16, on Thursday morning, giving it a market capitalization of about $1.8 billion.

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