This FTSE 250 stock rallied almost 50% in October after a takeover announcement. Is it time to buy?

FTSE 250 stock Playtech has been the subject of a takeover offer. I can see the opportunity here, so will a bidding war play out, and is it worth buying shares now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

FTSE 250 constituent Playtech (LSE: PTEC) had an explosive month in October after it was the subject of a takeover bid from Australian slot machine manufacturer Aristocrat Leisure. The bid for Playtech was 680p per share in cash, valuing the business at £2.1bn. Strangely though, the shares closed at 698.5p on Monday, signalling that there may be further bids to come from other interested parties. Should I attempt to capture the upside from a potential bidding war?

Playtech’s business and opportunity

Playtech specialises in gambling software for online casinos, online bingo, mobile gaming and sports betting. Revenue is forecasted to rise over 7% in the 12 months to December 2021, and by 22% to £1.4bn in the following financial year ending 2022. I can see the appeal of gambling shares right now as FTSE 100 stocks Entain and Flutter Entertainment have performed very well during the pandemic.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

A further huge growth catalyst for gambling shares comes from the US. In May 2018, the US Supreme Court legalised sports betting across the whole country, as prior to this decision a federal ban meant Americans could not legally bet on sports. Now that individual states have been given the green light to legalise sports betting, the industry has been given a huge growth catalyst. GAN, another gambling software provider, recognised this potential and re-listed its shares from London’s Alternative Investment Market to NASDAQ back in May last year.

Bidding wars

So, in a sector that is performing well and with opportunity for growth in the US market, it is understandable why Aristocrat has bid for Playtech. But with the shares trading hands above the bid price, could there be another competing bid to come?

Shareholders in Morrisons had the benefit of experiencing a bidding war this year. Two private equity firms competed to acquire the supermarket chain, with the acquisition eventually being formally approved at a £7bn valuation, or 287p per share. The day before the first takeover bid was announced, shares in Morrisons traded on the market at 178.5p, valuing the company at £4.4bn.

The bidding war raised the value of Morrisons by 59% in a little over four months!

A risk too far

Returns from bidding wars look very attractive, and it’s understandable why I may want to gain this exposure in my own portfolio. However, bidding wars don’t happen too often, and in fact, takeovers can even fail and shares can drop right back down to where they started.

As an example, check out Revolution Bars back in 2017 when shareholders rejected the bid for the company.

For these reasons, trying to chase returns from potential bidding wars just isn’t a strategy for me. There are certain sophisticated investors and hedge funds that attempt this, known as ‘merger arbitrage’, but it is a lot of risk to take on. For me, the best way to gain exposure to the potential bidding war for undervalued UK shares is using an ETF that tracks the FTSE 250. If a bidding war does play out for Playtech, my FTSE 250 ETF will benefit, but while also being diversified across the other 249 stocks in the index.

More on Investing Articles

Female florist with Down's syndrome working in small business
Investing Articles

2 promising penny stocks to buy on the dip

As stock markets continue to correct, I am hunting for oversold penny stocks that I think could help turbocharge my…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

I wouldn’t buy Bitcoin today. FTSE value stocks look much better value to me

Now looks like a promising time to buy UK value stocks, while Bitcoin still looks far too risky for me.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price is below 85p. Here’s what I’m doing!

The Rolls-Royce share price has suffered this year. Trading for below 85p, this Fool decides whether this is an opportunity…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

4 dividend stocks to buy as inflation soars!

I'm hunting for the best dividend stock to invest in as global inflation soars. Here are several high-dividend-yield shares that…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

UK shares to buy now: 3 big fallers I’d snap up

Our writer thinks this trio of strong business performers could be attractive UK shares to buy now for his portfolio.

Read more »

Lady researching stocks
Investing Articles

Could a falling stock market help me get rich?

When the stock market falls, what does it mean for our writer's portfolio? Here's why it could be an opportunity.

Read more »

Hand holding pound notes
Investing Articles

Should I buy these two 12%-yielding dividend shares for my Stocks and Shares ISA?

Do these double-digit dividend yielders offer our author the right balance of risk and reward for his Stocks and Shares…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 reasons to buy Lloyds shares at 43p

Our writer outlines three factors that make him bullish on Lloyds shares, as well as one noteworthy risk facing the…

Read more »