Proposed sale of financial trading division

RNS Number : 8553Z

Playtech PLC

26 May 2021

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION; IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

FOR IMMEDIATE RELEASE

26 May 2021

Proposed sale of financial trading division ("Finalto") for up to US$210 million

Playtech to focus on its technology led offering as a pure play business in the B2B and B2C gambling markets

Playtech plc ("Playtech" or "the Group") is pleased to announce that it has entered into an agreement for the sale of its financial trading division ("Finalto") to a consortium led by Barinboim Group and backed by Leumi Partners Limited and Menora Mivtachim Insurance Limited, together with key members of the Finalto Business' management team (together the "Consortium" or "Purchaser") (the "Transaction").

The cash offer from the Consortium is up to US$210 million, comprising an initial US$185 million of which US$15 million is deferred for up to two years from completion of the Transaction ("Completion"), together with a further US$25 million contingent on certain cash flow or other criteria being met by the business carried on by the Finalto group (the "Finalto Business").

Key highlights

· Disposal in line with stated strategy to simplify the Group

· Conclusion of an extensive process, with Playtech exploring all routes to maximise value and certainty for shareholders

· Unlocks significant capital for Playtech

· Playtech to focus on its technology led offering as a pure play business in the high growth B2B and B2C gambling markets

· Increases predictability and stability of cash flows for the remaining Group

Financial highlights and use of proceeds

· Agreement to sell Finalto to the Consortium for up to US$210 million, with the consideration comprising:

o  Cash of US$185 million, of which US$15 million is deferred for up to two years from Completion; plus

o  US$25 million contingent on certain cash flow or other criteria being met by the Finalto Business

· Transaction sale price of up to US$210 million which represents an enterprise value ("EV") to Adjusted EBITDA multiple of:

o  24x FY2019 Adjusted EBITDA and 6x FY2018 Adjusted EBITDA, being the last full years prior to 2020 which was impacted by the one-off COVID-19 benefit in Q1 2020

o  23x trailing twelve month period ending 30 April 2021 and 3x FY2020 Adjusted EBITDA

· As at 31 December 2020, Playtech held US$139 million (€113 million) of cash relating to Finalto's regulatory and operating requirements ("Restricted Cash") on the Group's balance sheet. Further to transaction negotiations with the Consortium, at Completion an amount of US$109 million is expected to be transferred with Finalto

o  The Disposal will result in net cash proceeds received at Completion from the Consortium of US$61 million (being US$170 million less US$109 million)

o  Cash available to Playtech at Completion will increase by approximately US$200 million (the US$170 million proceeds plus a further pro forma US$30 million Playtech will no longer need to hold as Restricted Cash) with up to an additional deferred US$40 million of cash proceeds to follow, of which US$15 million is not subject to conditions

· If the Transaction were to complete in the current trading environment, which remains uncertain due to the impact of the global pandemic, Playtech's intended use of proceeds would be to retain the consideration until there is clarity, and consequently reduce net debt in the interim

o  Should Playtech receive the funds in Q4 2021 as expected and on the assumption that there is greater clarity, Playtech remains committed to returning capital to shareholders when appropriate, whilst balancing the opportunities to invest in the business and taking a prudent approach to its capital structure and leverage

Further terms of the Transaction

· Transaction agreed on the basis of a "locked box" closing mechanism, whereby the economic risks/benefits associated with the Finalto Business transfer to the Purchaser from 31 December 2020 onwards

· Transaction subject to Playtech shareholder approval, with the Class 1 Circular (the "Circular") to be published as soon as practicable

· Unanimously supported by the Playtech Board as being in the best interests of shareholders as a whole

· Completion expected in Q4 2021, assuming normal timetable for regulatory clearances

Mor Weizer, CEO of Playtech commented:

"Playtech has a stated strategy to simplify the Group and today's announcement is the conclusion of a two year process in which Playtech has explored all routes to maximise value and certainty for shareholders from Finalto.

"The sale also offers a good outcome for all stakeholders in the Finalto Business, providing certainty for colleagues, customers and trading counterparties. The Consortium has a deep understanding of the Finalto Business and the markets in which it operates and we wish our colleagues every future success.

"Looking forwards, Playtech will focus on its technology led offering in B2B and B2C gambling, driven by our online expertise and supported by a strong balance sheet. We have been building momentum in our business, as highlighted by our progress over the last twelve months in key markets such as the US, Latin America, and Europe. The agreements we have signed with new customers in this period further demonstrate our capability as a leading technology provider and show the type of opportunities we intend to convert in the future."

As a Class 1 Transaction the sale is conditional upon the approval of Playtech shareholders, as well as being conditional on the approval of certain regulatory authorities in respect of the change of control. A Circular will be posted as soon as practicable, including the timetable for a General Meeting. As reported in Playtech's full year 2020 results announced on 11 March 2021, Finalto was classified as held for sale and reported in discontinued operations.

IMPORTANT NOTICE:

This announcement contains inside information as defined under the UK version of the Market Abuse Regulation (EU) No. 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018.

This announcement has been issued by, and is the sole responsibility of, Playtech.

The persons responsible for making this announcement are Chris McGinnis, Director of Investor Relations & Strategic Analysis, and James Newman, Director of Corporate Affairs.

Enquiries:

Playtech plc                                                                                                                              [phone]

Chris McGinnis, Director of Investor Relations & Strategic Analysis

James Newman, Director of Corporate Affairs

UBS Investment Bank (Financial Adviser and Joint Sponsor to Playtech)                             [phone]

Ian Hart / Ben Crystal / Sandip Dhillon

Goodbody Stockbrokers (Corporate Broker and Joint Sponsor to Playtech)    [phone]

Piers Coombs / Charlotte Craigie / Stephen Kane

Headland (PR adviser to Playtech)                                                                                          [phone]

Lucy Legh / Stephen Malthouse / Jack Gault

Introduction

Further to its announcement on 25 January 2021, Playtech is pleased to announce that it has entered into an agreement for the sale of its financial trading division to a consortium led by Barinboim Group and backed by Leumi Partners Limited and Menora Mivtachim Insurance Limited, together with key members of the Finalto Business' management team.

The cash offer from the Consortium is up to US$210 million, comprising an initial US$185 million, of which US$15 million is deferred for up to two years from Completion, together with a further US$25 million contingent on certain cash flow or other criteria being met by the Finalto Business. Approximately US$109 million of capital required to run the business will be transferred with Finalto as part of any sale.

As the Transaction constitutes a Class 1 Transaction under the Listing Rules it is conditional on the approval by Playtech shareholders, in addition to certain regulatory approvals. A Circular containing further details of the Transaction, together with a notice to convene a General Meeting, will be sent to shareholders as soon as practicable.

Background to and reasons for the Transaction

As Playtech has announced previously, including in its results announcement of 11 March 2021, it is a strategic focus of the Group to simplify its business operations and dispose of non-core assets. Playtech's strategy is to focus on its core gambling businesses, where it can leverage its market leading technology. As such, it has for some time been evaluating its options in relation to the Finalto Business.

As part of this strategy, the Board appointed UBS in 2019 to run a process to maximise value from a disposal of the business. In light of deteriorating market conditions for Finalto and its financial performance that year, however, the decision was taken to pause the process for a period of time.

In 2020, market conditions for Finalto rebounded significantly and Playtech was again approached by a number of interested parties. The Board recognised the potential to achieve its stated aim of disposing of Finalto from this position of strong performance and re-initiated the process to review offers for the business. Following press speculation, Playtech announced on 27 August 2020 that such a process had begun, which led to a number of further parties expressing interest in Finalto.

Following analysis of expressions of interest, and as announced on 25 January 2021, Playtech entered into exclusive discussions regarding the possible sale of Finalto to the Purchaser, a consortium led by Barinboim Group and backed by Leumi Partners Limited and Menora Mivtachim Insurance Limited, together with key members of the Finalto Business' management team who will transfer with the Finalto Business. Agreement on the terms of the disposal has now been successfully concluded and the Purchaser has entered into a binding agreement to acquire Finalto on the terms set out in this announcement.

The Board has unanimously concluded that the agreement reached with the Purchaser should be recommended to shareholders and that shareholders vote in favour of the Transaction at the General Meeting.

The Board has, throughout this elongated process, carefully evaluated all proposals which it has received, taking into account the prices which potential purchasers have proposed, the basis on which those prices have been reached, potential purchasers' knowledge and understanding of the business, particularly in light of its regulated status in multiple global jurisdictions, and the potential to provide a "clean break" for Playtech.

As well as delivering an attractive value for Playtech shareholders, the Board believes the Transaction represents a good outcome for all other stakeholders, including providing a great home and certainty for Finalto colleagues, customers and trading counterparties. The Transaction offers the opportunity to realise an attractive value for the Finalto Business, achieve significant progress in our strategic aim of simplifying the Group, and release significant capital from a non-core asset.

About Finalto

Finalto is a specialist in B2C and B2B multi-channel trading software and services.

The Finalto Business' B2C offering, operating the brand Markets.com, is an established online contracts for difference ("CFDs") broker where customers can trade shares, indices, currency and commodity CFDs rapidly and securely on its trading platforms.

The Finalto Business' B2B offering consists of:

a)  clearing and execution services for other retail brokers and professional clients, through Finalto Financial Services Limited (formerly CFH Clearing Limited), where the Finalto Business acts as a matched-principal liquidity provider and straight through processes the trades to prime brokers and clearing houses;

b)  clearing and execution for other retail brokers, where the Finalto Business acts as the execution venue and market-maker; and

c)  technology and risk management services, where the Finalto Business provides platform, client relationship management, reporting and risk-management technology to the retail broker market.

Where the Finalto Business acts as the execution venue, or provides execution services, these activities are undertaken by Finalto and its subsidiary undertakings (the "Finalto Group") regulated by the FCA, the Monetary Authority of Singapore, the Cyprus Securities and Exchange Commission, the British Virgin Islands' Financial Services Commission, the Australian Securities & Investments Commission and the South African Financial Sector Conduct Authority.

In the financial year ended 31 December 2020, the Finalto Business generated revenues of €121.8 million, adjusted EBITDA of €56.4 million (split between H1 2020 and H2 2020 of €52.8 million and €3.6 million respectively). As outlined in Playtech's 2020 full year results announced on 11 March 2021, the Finalto Business had an unprecedented performance in 2020 as it benefited from exceptional increases in market volatility, particularly in H1. Market activity began to normalise towards the end of the first half of 2020 and this trend largely continued throughout the remainder of 2020. This led to a modest performance from the Finalto Business in H2 compared to H1 2020, a trend which has continued into 2021.

For the first four months of the 2021 financial year, Finalto has generated adjusted EBITDA of US$(0.4) million in aggregate, and US$9.2 million over the twelve month period ending April 2021.

The Finalto Business was classified as a discontinued operation in the full year 2020 results, and the Group also recognised an impairment charge of €221.3 million in relation to Finalto. As at 31 December 2020, the gross assets of Finalto were €465.9 million.

Further financial information will be set out in the Class 1 Circular to be posted to shareholders in due course.

Ron Hoffman (Chief Executive Officer of the Finalto Business) and Liron Greenbaum (Chief Operations Officer of the Finalto Business) are deemed to be key individuals to Finalto.

About the Consortium

The Purchaser is a newly formed company incorporated in Israel, established for the purpose of acquiring the Finalto Business. The Purchaser is being funded by a consortium consisting of Barinboim Group, Leumi Partners Limited and Menora Mivtachim Insurance Limited and by senior secured debt financing from The Phoenix Insurance Company Limited and certain of its affiliates. The Purchaser will be supported by key members of the Finalto Business' management team that will transfer with the Finalto Business, including Ron Hoffman (Chief Executive Officer of the Finalto Business) and Liron Greenbaum (Chief Operations Officer of the Finalto Business).

Barinboim Group is a private equity and venture capital firm based in Tel Aviv. Barinboim Group invests in companies operating in the media sectors.

Leumi Partners Limited is the merchant and investment banking arm of Bank Leumi (TASE: LUMI), one of the two largest banking groups in Israel. Leumi Partners Limited is based in Tel Aviv and offers direct equity investment in sectors such as technology media and telecom, consumer & retail, and healthcare. Leumi Partners Limited's line of business includes conducting investments and providing services such as underwriting, financial analysis and research, strategic advice, mergers & acquisitions, and raising equity and debt.

Menora Mivtachim Insurance Limited is an Israeli insurance and finance group headquartered in Tel Aviv. Menora Mivtachim Insurance Limited is active in the capital markets and finance sectors, including mutual funds management, financial portfolio management, underwriting and worldwide real estate investments. Menora Mivtachim Insurance Limited specialises in asset management, and manages the largest pension fund in Israel, New Mivtachim.

The Phoenix Insurance Company Limited is a subsidiary of Phoenix Holdings Ltd (TASE: PHOE), an Israeli insurance company listed on the Tel Aviv Stock Exchange.

Key terms of the Transaction

Under the sale and purchase agreement, Playtech has agreed to sell Finalto to the Purchaser for cash consideration of up to US$210 million, with the Transaction structured as a sale of Finalto's outstanding shares and loans.

The total consideration payable to Playtech under the sale and purchase agreement is structured as follows: (i) US$170 million payable in cash on Completion; (ii) US$15 million payable on the second anniversary of Completion or, if a specified exit event in respect of the Finalto Group occurs before such time, upon such exit event occurring; (iii) US$15 million payable if a threshold in respect of the cumulative net cash inflow of the Finalto Group is met on or before the 30 June 2024 or, if a specified exit event in respect of the Finalto Group occurs prior to the sixth anniversary of Completion, which places an enterprise valuation on the Finalto Group of US$ 300,000,000 or more upon such exit event occurring; (iv) US$10 million payable if a specified exit event in respect of the Finalto Group occurs prior to the sixth anniversary of Completion, which places an enterprise valuation on the Finalto Group of US$ 420,000,000 or more upon such exit event occurring; and (v) a daily amount of US$ 24,000 in respect of each day in the period commencing on 21 November 2021 and ending on the day before Completion, save that, if Completion occurs before 21 November 2021, no such additional consideration will be payable to Playtech.

It is expected that approximately US$109 million of capital required to run the Finalto Business will be transferred with Finalto on Completion.

Completion of the sale and purchase agreement is conditional on (i) the approval of the Transaction by Playtech shareholders and (ii) receipt of the consent of certain regulatory authorities to the change of control of the relevant members of the Finalto Group. The sale and purchase agreement will terminate if the above conditions are not met or waived by 31 December 2021, which date may be extended by Playtech by up to three months or otherwise by agreement between Playtech and the Purchaser.

Playtech has given limited warranties (relating to title, authority, capacity and solvency) in favour of the Purchaser under the sale and purchase agreement and will also provide an indemnity on Completion in respect of certain claims and potential claims related to the Finalto Group.

The Purchaser has paid a deposit of US$5 million as security for the Purchaser's obligations under the sale and purchase agreement (the "Deposit"). The Deposit will be paid to Playtech on the earlier of Completion and the termination of the sale and purchase agreement in accordance with its terms, other than where such termination is due to certain factors, which include but are not limited to the resolution not being passed at the General Meeting in respect of the Transaction (and the Purchaser has complied with its obligations in respect thereof). The Purchaser may deposit an additional US$2 million to extend by an additional 20 business days the date by which it is required to make the applications, submissions, notifications and filings required under the sale and purchase agreement.

If the sale and purchase agreement terminates because the resolution was not passed at the General Meeting and, within 12 months following such termination, an exit event in respect of the Finalto Group by Playtech occurs that values the Finalto Group at an enterprise value in excess of US$200 million, Playtech will pay to the Purchaser US$8.8 million.

Transaction approvals and expected timetable to Completion

The Transaction is subject to the satisfaction of a certain conditions, including the approval of the disposal by Playtech shareholders at a General Meeting, and receipt of consent of certain regulatory authorities to the change of control of the relevant members of the Finalto Group.

A Circular containing further details of the Transaction, together with a notice to convene a General Meeting, will be sent to Playtech shareholders as soon as practicable. Completion of the Transaction is expected in Q4 2021.

About Playtech

Founded in 1999 and premium listed on the Main Market of the London Stock Exchange, Playtech is a market leader in the gambling and financial trading industries with c.6,400 employees across 24 countries.

Playtech is the gambling industry's leading technology company delivering business intelligence driven gambling software, services, content and platform technology across the industry's most popular product verticals, including, casino, live casino, sports betting, virtual sports, bingo and poker. It is the pioneer of omni-channel gambling technology through its integrated platform technology, Playtech ONE. Playtech ONE delivers data driven marketing expertise, single wallet functionality, CRM and responsible gambling solutions across one single platform across product verticals and across retail and online.

Playtech partners with and invests in the leading brands in regulated and newly regulated markets to deliver its data driven gambling technology across the retail and online value chain. Playtech provides its technology on a B2B basis to the industry's leading retail and online operators, land-based casino groups and government sponsored entities such as lotteries. Playtech directly owns and operates Snaitech, the leading sports betting and gaming company in online and retail in Italy.

No offer or solicitation:

This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation to purchase, acquire, subscribe for, sell, dispose of or issue any securities in Playtech in any jurisdiction.

Overseas jurisdictions:

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law. Persons who are not resident in the United Kingdom or who are subject to the laws of other jurisdictions should inform themselves of, and observe, any applicable restrictions or requirements. Any failure to comply with these restrictions may constitute a violation of securities laws of any such jurisdictions. To the fullest extent permitted by law, Playtech disclaims all and any responsibility or liability for the violation of such restrictions by such person.

Cautionary note regarding forward looking statements:

This announcement contains certain forward looking statements with respect to the financial condition, results of operations and businesses of Playtech, the Group and Finalto and certain plans and objectives of Playtech. All statements other than statements of historical fact are, or may be deemed to be, forward looking statements. Forward looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements.

Statements containing the words "intends", "aims", "anticipates", "assumes", "budgets", "could", "contemplates", "continues", "plans", "predicts", "projects", "schedules", "seeks", "shall", "should", "targets", "would", "believes", "anticipates", "may", "will", "estimates" "expects" and "outlook" or, in each case, their negative or other variations, or words of similar meaning are forward looking.

Each forward looking statement speaks only as of the date of the particular statement. Playtech does not undertake any obligation publicly to update or revise any forward-looking statement as a result of new information, future events or other information, although such forward-looking statements will be publicly updated if required by the Financial Conduct Authority of the United Kingdom, the London Stock Exchange plc or by applicable law. Given these statements involve risks and uncertainties, results could differ materially from those expressed, implied or inferred from the forward looking statements contained in this announcement.

Financial information:

References to historic financial information of Playtech or the Finalto Group in this announcement have been extracted without adjustment from the relevant published audited financial information of Playtech (which applied the prevailing foreign exchange rate at the relevant time) save for the references to (i) the financial performance of the Finalto Group in respect of the twelve month period ending 30 April 2021 which has been extracted without adjustment from Playtech's latest management accounts; and (ii) the Restricted Cash which has been converted to US Dollars at the relevant historical exchange rate.

No profit forecast:

Unless otherwise stated, no statement in this announcement is intended as a profit forecast or a profit estimate for any period and no statement in this announcement should be interpreted to mean that earnings, earnings per share of Playtech, income or cash flow for Playtech, the Group or Finalto (as appropriate) for the current or future financial years would necessarily match or exceed the historical published earnings, earnings per share of Playtech, income or cash flow for Playtech, the Group or Finalto (as appropriate).

Rounding:

Certain figures included in this announcement have been rounded. Accordingly, figures shown for the same category may vary slightly and figures shown as totals may not be an arithmetic aggregation of the figures that precede them.

UBS AG London Branch is authorised and regulated by the Financial Market Supervisory Authority in Switzerland. It is authorised by the Prudential Regulation Authority and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority in the United Kingdom. UBS AG London Branch is acting exclusively as financial adviser to Playtech plc and no one else in connection with the process. In connection with such matters, UBS AG London Branch will not regard any other person as its client, nor will it be responsible to any other person for providing the protections afforded to its clients or for providing advice in relation to the process, the contents of this announcement or any other matter referred to herein.

Goodbody is authorised and regulated by the Central Bank of Ireland, and is also subject to regulation by the Financial Conduct Authority. Goodbody is acting exclusively for Playtech and for no one else in connection with the process and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the process or any other matter referred to in this announcement and will not be responsible to anyone other than Playtech for providing the protections afforded to its clients or for giving advice in relation to the process or any other matter referred to in this Announcement.

 

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