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SPACtrac Report - DD3 Acquisition Corp.: A Bet On Latin America

Published: Monday, November 8, 2021

DD3 Acquisition Corp.: A Bet On Latin America

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Patrick McCann, Research Associate, Noble Capital Markets, Inc.

Refer to end of report for Analyst Certification & Disclosures

The Deal. DD3 Acquisition Corp. II (DD3) will be merging with Codere Online in a deal that will make Codere Online a publicly traded company. The deal, which values Codere Online at an Enterprise Value of $353mm, will provide an influx of cash for the company to pursue growth opportunities on the next frontier of online gambling, Latin America.

The Target. Codere Online is an international gambling operator offering internet-based casino and sports betting services. It is in the Latin American segment that Codere Online plans to focus its growth efforts. In fact, it has already piggy backed off its parent's casinos to offer online gambling in markets such as Mexico, Columbia, and Panama. There are two primary reasons for focusing on growth in Latin America: increasing mobile smartphone penetration and the advent of regulated online gambling.

The Market. According to Grand View Research, the global market size for online gambling could be as large as $127.3 billion by 2027. This would assume a compound annual growth rate (CAGR) of 11.5% for the period of 2020-2027. Many countries in Latin America lag the U.S. and Europe technologically and in regard to online gambling regulation. As the gap in technology and legalized online gambling narrows, it will allow for more online gambling activity and provide a significant opportunity for established online casino operators.

The Finances. After the merger, management expects the newly established company to generate $152mm in top line revenue in 2022 and grow that to $203mm in 2023. Following the merger, the company is expected to have a cash position of $144mm with virtually no debt. As a result, the company is expected to have the financial flexibility to invest in its growth strategy.

The Valuation. At the current share price of nearly $10 per share, DD3 equity is valued at 2.3x Enterprise Value to 2022E Revenue. The shares currently trade at a discount to the business's peers. If DD3 were to trade in line with its peers, on a blended basis for its mature and high growth markets, the shares would trade near $17.50 per share.

Investment Overview

International casino operator, Cordere Group, plans to bring its online casino and sports betting segment public through a combination with DD3 Acquisition Corp. II, a Special Purpose Acquisition Company, under stock symbol DDMX. The transaction is expected to be completed in the fourth quarter of 2021. Codere Group is based in Spain, with operations in seven countries including Italy, Mexico, and several countries in South America. The new public company will be called Codere Online and will offer CODERE branded online casino and sports betting services. Codere Online will be focused on expansion in the developmental Latin American markets, using the parent company's retail/casino platform. 

In addition to funding from DD3, there are other private investors who will be participating in the transaction. The group of PIPE investors includes Barron Funds, MG Capital, LarrainVial, and DD3 Capital Partners (the SPAC's sponsor). DD3 Acquisition Corp. II will contribute $125 million in cash, which is currently held in trust, while PIPE investors will add an additional $67mm, bringing the total cash from investors to $192 million. The post-money equity value will be roughly $500 million, comprised of $270 million of rollover equity for Codere Group, $35 million in founder's shares, and the total cash contribution from DD3 and the PIPE investors. As such, equity ownership will be as follows: 54.3% owned by the Codere Group, 25.1% DD3 shareholders, 13.5% owned by the PIPE investors, and 7% by the founders and other private interests. 

The Finances. After $18 million in transaction fees and a $30 million cash payment to the parent, Codere Group, the company will have approximately $144 million in cash and virtually no debt. This provides a flexible balance sheet to pursue Codere Online's strategy to establish itself as a leading online gaming operator in the developing Latin American markets. The company plans to use the cash for a marketing and infrastructure build into new markets and to invest in technology to support the expansion of its operations.  

The company's plan is to leverage its online business in Spain and Mexico into high growth Latin American markets. Notably, not all Latin American markets are regulated. In some countries, casino and online gambling is unregulated, which makes competing in those markets difficult. In addition, there are markets that prohibit gambling. As such, Codere Online plans to enter only regulated markets. Markets that are on the company's radar screen for expansion include Brazil, Chile, Peru, Puerto Rico, Uruguay, and Argentina. Many of these countries have started the process toward legalizing online gambling. The company has further plans to enter the United States, given a large Hispanic community that recognizes the CODERE brand.

Why Latin America and why Codere? Codere is an established brand. Its operations in Latin America date back to 1984. In addition, Codere Online will be aligned with its parent company and its large retail footprint. Given its knowledge of the markets and the regulatory hurdles, the company is expected to be among the first movers into the Latin American markets. Latin America, as a whole, is a large and dynamic growth market. Of the countries listed above that may legalize online gambling, the potential population would be 200 million. In contrast, of the 20 States and District of Columbia in the United States that allow online gambling, that population totals a much smaller 120 million. While the United States leads in smartphone penetration, a key attribute for online gambling, Latin America is closing the gap (discussed later in this report). 

DD3 (the publicly traded SPAC) currently trades near $10 per share, which implies a Enterprise Value to projected 2022 revenues of 2.3 times. Near current levels, the shares appear to be trading at a discount to its peers, which include established gaming companies in more mature markets and gaming companies involved in faster growth oriented markets, such as Latin America. Both peer groups are comparable to segments of Codere Online's business. Using a blended multiple that incorporates the valuation of the more mature markets and the developing markets, the DD3 shares appear to be undervalued, and could offer 75% in upside potential. The analysis is detailed in the valuation section of this report. 

Investment Highlights

  • Increasing gaming legalization. Several countries in Latin America are poised to legalize online gambling, which would open up previously unavailable markets to casino operators and online gaming companies alike. The combined population of these countries is over 200 million. To put this into perspective, 20 States and the District of Columbia in the United States have legal gambling, which equates to 120 million in population.
  • Rising smartphone adoption. Gaming apps are largely smartphone based, and, as such, rising adoption rates for smartphones are an important attribute in determining the potential gaming market in Latin America. Latin American countries have less access to the internet, but adoption rates are rising rapidly. In Brazil and Mexico, (two of the most populated Latin American countries), the combined smartphone adoption rate is expected to grow to 73% by 2025 from an estimated 63% in 2019, according to By contrast, 85% of the U.S. population has smartphone access. 
  • Large revenue growth opportunity. Net gaming revenue in legalized Latin American countries where Codere Online has operations is expected to increase from 2020 to 2023 at a 34% Compound Annual Growth Rate (CAGR) to $203 million. Planned expansion into additional markets is expected to accelerate revenue growth to roughly $400 million by 2027. 
  • Strong brand. Codere Online's parent has built the CODERE brand in Latin America for nearly 40 years.
  • Omnichannel synergies. Given its strong relationship with Codere Group, Codere Online will be able to leverage CODERE's retail locations for payment processing and customer service. Furthermore, Codere Online can leverage its parent's extensive customer database and benefit from cross-selling and coordinated promotional campaigns. This should help reduce customer acquisition costs and potentially improve player loyalty.
  • Relatively low competition. According to management, the competition in Latin America is significantly lower than in more developed markets. For example, the number of major competitors for an online gaming operator in New Jersey stands at nine, whereas Codere Online has four major competitors in Columbia.
  • Barriers to entry. Codere has dealt with complex regulatory requirements in Latin America for years. As such, the company is well equipped to expand in Latin American countries, which have varying regulatory hurdles, which is viewed as a barrier to new competition.


Investment Risks

  • Increased competition. Although the competition in Latin America is currently lower than in more developed gambling markets, the opportunity that lies there may not go unnoticed. This could result in more online casino operators entering Latin America over the next several years, in spite of regulatory hurdles.
  • Regulatory risks. Legislation often moves slowly. A slower than expected rollout of gambling regulations in key countries could adversely impact Codere Online's ability to grow. Moreover, a change in appetite for legalization of the industry in some countries would impact Codere Online's long term prospects.
  • Slow smartphone adoption. Due to the importance of the company's gaming apps to its business model, slower than expected smartphone adoption in Latin America could result in a smaller than expected market opportunity.
  • Decrease in personal discretionary income. Rising taxes, inflationary pressures, higher gas prices, unemployment, all may adversely affect personal discretionary income and therefore the ability of consumers to gamble. 


Industry Overview

Internet changed the gaming industry. The internet revolutionized many industries and gambling is certainly one of those. Players that like casino games or sports betting now can simply open an app on their cellphone for instant play. The necessary software for online gambling was first developed in the mid-1990s, and, ever since, online gambling has been gaining popularity. Today, gamblers engage in poker, blackjack, roulette, and many other casino games from a web-browser or a phone application. The same is true for sports betting and even betting on eSports. iGaming is the general term used to refer to all such online wagering activity.

The online gambling market was a $10 billion market in 2010 and has quickly grown to a $59 billion market in 2020. New areas of online gambling, including eSports, and legalization efforts are expected to allow the industry to continue a fast pace revenue growth trajectory. As indicated in Figure #1 Global Online Gaming Market, online gambling revenue is expected to grow at strong double digit rates, 11.5% CAGR from 2020 to 2027. The strong double digit growth rate likely will be skewed toward developing markets versus more mature markets.

Figure #1 Global Online Gaming Market

Source: Grand View Research

Due to iGaming's increasing popularity, countries have had to grapple with regulatory measures that include verifying the software technology, back office policy and procedures, determining the financial capability of the entity, the functionality of the games, and taxes. Today, iGaming is regulated in many developed countries like the United States. But, even in regulated markets, there are varying rules on the types of games and sports betting allowed, as well as tax rates.   

For instance, although iGaming is regulated in many of the States in the U.S., not all forms of it are treated equally. Online sports betting is legal in 20 States and the District of Columbia, but not all of those States allow for online casino games. Nonetheless, more legalization of iGaming is expected in the U.S., especially as States seek additional tax revenue. The Supreme Court overturned the federal ban on sports betting in 2018, and already 20 States have legalized online participation. As iGaming popularity and legal standing continue to grow in the U.S., other countries are likely to follow suit. In fact, there are favorable signs that Latin America may be on a similar path of iGaming adoption as the United States.

For the moment, gambling in many Latin American countries is still the "wild west", either unregulated or even prohibited. Some countries, however, have already passed legislation to regulate gambling, both online and in-person. At this time, there are several Latin American countries that allow some form of gambling. Existing casino operators are jockeying for market share in the online gaming market in areas that are already regulated and are preparing to enter additional markets should the trend of legalization continue.

A Blueprint for Latin America. Although several large Latin American countries have not yet regulated online gambling, there are some that have taken such steps. Most notably of these, due to their size, are Mexico and Columbia. Mexico regulates in-person casinos and is home to many casino operators in the country's tourist hotspots, such as Monterrey, Guadalajara, Cancun and Veracruz, among others. Casinos also may apply for a permit to offer online gambling themselves or through affiliates. One clear benefit of Mexico's gambling regulations is tax revenue, which may provide motivation for other countries to follow suit.

Columbia was the first South American country to begin regulating the online gambling industry, according to the Jerusalem Post, with legislation it passed in 2016. The online gambling industry has seen strong growth. For example, iGaming revenue was over $2 billion for the first half of 2021, more than double that of the first half of 2020, according to Similar to Mexico, Columbia provides the rest of Latin America with an example of the benefits of a well regulated gambling industry, with its growing tax revenue. For instance, Columbia's tax revenue from online gambling grew 81% from 2018 to 2019, per the Jerusalem Post. Moreover, for any country that experienced a tax lull following the COVID pandemic, online gambling regulation may be especially appealing now.

Should the other highly populated countries in South America follow Columbia's lead, it would open up a large opportunity for casino operators. Figure #2 Smart Phone Penetration, illustrates the Smart Phone Adoption rates in many of the large Latin American markets.

Figure #2 Smart Phone Penetration

Even with an estimated smartphone adoption rate of just 65%, the combined population with smartphones is greater than 170 million. If smartphone penetration rate increases in these countries, the online gambling opportunity will become greater.

Legislators stirring in Brazil. The largest Latin American market in terms of population that has not yet regulated the online gambling industry, is Brazil. But this may be changing soon.

Recently, the Brazilian government began a push to legalize gaming and sports betting, focusing first on sports betting. According to, a law was passed in 2018 legalizing sports betting (online & in-person), but the regulatory framework has not yet been established. Recently, however, an undersecretary of the Brazil Ministry of Economics stated that regulations for the industry are being formalized and the first legal sports bet could be placed in 2022. In fact, according to, the secretary of SECAP (a Brazilian agency for developing policy in the lottery industry), the government of Brazil is aiming to bring the sports betting industry live in time for the 2022 World Cup, albeit that is an aggressive timeline.

Whether its next year or further into the future, when Brazil does begin regulating the industry, it will open up a significant market. Brazil is the most populous Latin American country, with over 200 million people. To put that into perspective, consider that the combined population of the 20 States (and D.C.) with legal online sports betting is roughly 120 million. This means that if Brazil were to legalize gambling (including online sports betting), online sports betting would be available to more people in Brazil than the United States. There are of course additional considerations when evaluating the Brazilian market, such as disposable income and technology (especially relevant for the online market). Nonetheless, the opportunity for gambling operators, should Brazil become open for business, is noteworthy.

More dominoes ready to fall. Chile, although less populated than Brazil, is still a large market of about 20 million people. The country currently has a legal in-person casino industry and online gambling may be just around the corner. The pandemic simultaneously caused a decrease in regulated in-person gambling and an increase in prohibited iGaming, the latter of which does not generate tax revenue. The pandemic, therefore, highlighted the need for online gambling regulation in the country. According to, in early 2021, the Chilean Ministry of Finance announced plans to introduce legislation to regulate online gambling, sighting the pandemic and the perspective tax revenue as reasons for the development. This makes Chile yet another domino ready to fall.

Peru is another country that has yet to issue formal online gambling regulations, according to Simon's Online Gambling Guide. But this may soon be changing. According to Slotegrator, the Peruvian government has indicated its intention to regulate the online gambling market. However, in the meantime, there online gaming operators offering their services in the country, taking advantage of the current legal grey area. Additionally, smaller countries like Uruguay, Puerto Rico, and the individual provinces of Argentina (Argentina regulates gambling, province by province) could expand the opportunity for online gambling operators through greater regulatory transparency.

Company Overview

Codere Online's parent, Codere Group, was founded in 1980 in Madrid as a slot machine operator and is listed on the Madrid Stock Exchange since 2007 (ticker: CDR). In the early stages of its growth, Codere Group focused on expanding its operations throughout Spain. However, it did not take long before it was opening gaming rooms on another continent, namely, Latin America. It began operations in Columbia as early as 1984 and in the years that followed, expanded to other nearby countries, such as Argentina and Mexico. In 2002, Codere Group opened its first bingo hall in Italy and, by 2008, it obtained a sports betting license in Madrid. In 2014, Codere Group launched online gambling with the founding of Codere Online. The company began operating its online business in Mexico in 2016 and obtained a Columbian license in 2017. Today, Codere Group's global presence includes Spain, Italy, Mexico, Columbia, Argentina, Panama, and Uruguay.

Due to its parent company's longstanding international presence, Codere Online has had the luxury of building on its parent company's established brand. After all, Codere Group is present in over 10,000 locations worldwide. Codere Online has capitalized on this, with online gambling services in Spain, Italy, Mexico, Columbia, and Panama. Codere Group already has a physical presence in these markets, providing an opportunity for Codere Online and Codere's retail business to work together. The benefits of this co-operation to Codere Online include in-person payment processing, face-to-face customer service, and access to Codere's retail customer database. The company refers to this co-operation as its omnichannel strategy. Although the omnichannel strategy has been successful where implemented, in Mexico, Figure #3 below illustrates how Codere Online has gone well beyond that to acquire purely online customers.

Figure #3


A dual-threat business. Codere Online offers two distinct channels, casino games and sports betting. For 2020, the revenue split between the two channels was fairly balanced, as Figure #4 depicts.

Figure #4

The company's ability to capitalize on both streams of business will be crucial for optimizing growth opportunities in the emerging online gambling markets.

Just getting started. In Codere Online's brief history, it has been able to leverage its parent, Codere Group, to establish itself in the CODERE brand's key markets. Moreover, it has shown an ability to cash in on customer demands for two different services, online casino gaming and online sports betting. Importantly, Codere Online has not fully tapped the opportunity. In the very near term, the company will aim to establish itself as a key player in its core Latin American markets. According to company management, there is less major competition there than in certain other parts of the globe.

Figure #5 Competitive Landscape illustrates below highlights some competitive differences between Codere Online's core Latin American markets and selected reference markets. Notably, there are far fewer competitors in Latin America than in other more established markets. And, in the markets that Codere are in, it is the established leader in terms of market presence and name recognition. 

Figure #5 Competitive Landscape

Looking further ahead, Codere Online stands ready to expand beyond countries such as Mexico and Columbia, into developing markets. Figure #6 Market Opportunity illustrates the company's short and longer-term growth prospects, defined as, markets where the company is established, and markets where it has not yet launched, respectively.

Figure #6 Market Opportunity

Simply from a population standpoint, there is both a sizable opportunity in core markets, as well as a growth runway in untapped markets.

There is more to the story than just the populations, however. The following Figures #7 and #8 illustrate the expected total addressable market sizes in Codere Online's core and expansion Latin American regions. The data was produced by considering GDP per capita and internet connectivity rates to give a more precise view of the market opportunities.

Figure #7

Figure #8


In addition to its plans to expand in Latin America illustrated above, Codere Online is also poised to pursue opportunities with the Latino population in the United States. Management highlights several key target States with large latino populations, where online sports betting is either legal or expected to be so within the next 2 years. The combined population of these States, which among others include California, Texas, and Florida, is roughly 45 million. Key characteristics of Codere Online's user experience that should appeal to the U.S. Latino market include: a soccer-first sports betting focus, a Spanish-speaking call center, and tested Spanish-language user interface.

Together the core Latin American markets along with the expansion markets provide Codere Online with attractive growth prospects well into the future. The caveat with the expansion markets is that it is largely dependent upon future online gambling regulation. But, as highlighted earlier in this report, gambling regulation trends have been moving in a positive direction.

About DD3 Acquisition Corp. II. DD3 Acquisition Corp. II is a special purpose acquisition company launched by DD3 Capital Partners, a Mexico City based investment advisory firm. DD3 Capital Partners was founded in 2016 by Martin Werner and Jorge Combe, both of whom were previously in leadership roles for Goldman Sachs' Investment Banking division for Latin America. DD3 Acquisition Corp. II is the second SPAC they have sponsored. DD3 Capital Partners' first SPAC raised $55.7mm and successfully merged with Betterware in early 2020.

Financial Overview

Codere Online's balance sheet, as of June 30, 2021, is illustrated in Figure #9 Condensed Balance Sheet. At that time, the company had cash position of just under $8 million. Once the combination is complete, the cash position is expected to increase to $144 million, after transaction fees. It is also noteworthy that the company's post-merger balance sheet will be virtually debt free.

Figure #9 Condensed Balance Sheet

Recent Results & Outlook

Codere Online's revenue has been growing in recent periods. A comparison of fiscal 2020 with fiscal 2019 reveals net gaming revenue growth of 20% as illustrated in Figure #10 below. 

Figure #10