Acquistion

RNS Number : 6635C

Playtech Limited

10 March 2011

 



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 THAT JURISDICTION

PLAYTECH LIMITED

("Playtech," "the Company" or "the Group")

ACQUISITION OF AFFILIATE BUSINESSES
FOR INITIAL CONSIDERATION OF €140 MILLION

Playtech, the international designer, developer and licensor of software to the online, mobile and land-based gaming industry, announces that it has entered into an agreement to acquire the entire issued share capital of PT Turnkey Services Limited, ("PTTS") for an initial cash consideration of €140 million (the "Acquisition") from Worldwide Online Enterprises Ltd (the "Seller"). The Acquisition, which is subject to satisfaction of certain regulatory and other customary conditions, is due to complete on 30 June 2011 ("Completion").  On Completion, PTTS, a newly incorporated holding company established in connection with the Acquisition, will own a group of new companies (together with PTTS, is the "Target Group") which will own the assets carrying out a range of complementary B2B online gaming service operations that provide support to the Group's licensees.

Highlights

§ The Company has seen a significant increase in the demand for a turnkey solution in regulated markets and the clear competitive benefits of being able to offer a full turnkey service to existing and potential licensees.  The Acquisition allows the Group to own outright a wide range of affiliate service providers which already provide services to the Group's licensees, ownership of which will significantly enhance its commercial proposition and competitive position in the expanding online gaming marketplace

§ The Acquisition will enable the Group to be a single source supplier of online gaming solutions, particularly to the growing number of new entrants targeting regulated online markets. These opportunities are in line with Playtech's strategy to focus on regulated markets which are expected to be the most important in the changing gaming industry. The Directors believe the Acquisition places Playtech in an extremely advantageous position

§ The consideration has been structured to enable payment out of existing resources and future cashflows and incorporates an element dependent on the future performance of the Target Group.  Initial consideration (the "Initial Consideration") of €140 million (subject to a working capital adjustment) will be paid in cash in broadly equal half yearly non-interest bearing instalments over a period of 30 months following Completion. Further consideration (the "Additional Consideration") based on the Target Group's performance in the 3 years following the completion of the integration process - which is expected to be no later than December 2011 - will become payable in cash, to the extent that 7 times the adjusted EBITDA of the Target Group for 2014 exceeds the Initial Consideration. The Additional Consideration is capped at €140 million and will be paid in four broadly equal non-interest bearing instalments over the 18 months following the determination of the Additional Consideration

§ The Acquisition is expected to be earnings accretive for the Group, on an adjusted earnings basis, in 2011 and thereafter, targeting over 13% adjusted earnings accretion by 2012.  In the twelve months to 31 December 2010, the assets and businesses that will be comprised within the Target Group achieved unaudited revenues of €90.2 million with EBITDA of €18.9 million.  As at 31 December 2010, the assets and businesses of the Target Group had unaudited net assets of €61.6m

§ The annualised run rate in the second half of 2010, which excludes revenues and profits from France, gives pro-forma unaudited annual revenues of €81.4m and EBITDA of €19.2m after stripping out one-off items.

§ On Completion the Target Group will provide marketing and ancillary services to operators of online gaming businesses. These will comprise four separate service divisions - marketing, operations, payment advisory and network management - and will employ over 850 staff, the majority of which are based in Bulgaria and the Philippines. The marketing services division has 5 clients - 4 of which are in regulated and soon to be regulated markets, all of which are existing Playtech licensees, and the remaining divisions have contracts with over 60 clients. The Target Group and Playtech share a common client base. The Target Group is also in advanced discussions with a number of additional potential licensees in regulated and soon to be regulated markets

§ Integration of the businesses is anticipated to be completed by the end of Q4 2011 helped by the common client base between Playtech and the businesses in the Target Group.  Playtech will assume responsibility for all functions from Completion and the business will report as a separate division

§ The Acquisition constitutes a related party transaction under Rule 13 of the AIM Rules as the Seller is beneficially owned by Teddy Sagi, who through Brickington Trading Limited, owns 40.4% of the issued share capital of the Company.  The Directors, having consulted the Company's Nominated Adviser, Collins Stewart Europe Limited, consider that the terms of the Acquisition are fair and reasonable in so far as shareholders are concerned. The Acquisition is also classified as a Substantial Acquisition under AIM Rule 12

Commenting on the Acquisition, Mor Weizer, Chief Executive Officer of Playtech, said:

"The increasing opportunities for Playtech to provide its services in regulated markets have significantly increased the strategic and commercial rationale for these affiliate businesses to be part of Playtech.

"Integrating these affiliate businesses into the group will enable us to provide current and future customers with a full service market leading offering. Playtech will be able to provide its licensees with a range of services up to a full turnkey solution for all their online gaming needs.  This makes our proposition particularly attractive to those businesses looking to operate in newly regulated markets and wanting a fully functioning and highly competitive offering from day one.

"This is a highly complementary acquisition, allowing Playtech to integrate market leading support services into its primary technology and content provision business. It represents excellent value, is earnings accretive for our shareholders and has a significant performance related element of the consideration to be funded out of future cashflows.

"The acquisition provides an immediate and growing revenue stream in its own right. Having worked intimately with these affiliate businesses over a long period of time, we can take great comfort around a successful integration and are excited by the prospects for the enlarged group."

- Ends -

For further information contact:

Playtech Ltd Mor Weizer, Chief Executive Officer Shuki Barak, Chief Financial Officer Ross Hawley, Director of Investor Relations c/o Pelham Bell Pottinger	[phone]
Collins Stewart Piers Coombs / Bruce Garrow	[phone]
Deutsche Bank Mumtaz Naseem / Andrew Smith	[phone]
Pelham Bell Pottinger David Rydell / Olly Scott / Guy Scarborough	[phone]

About Playtech

Playtech develops unified software platforms and content for the remote and land-based gaming industry. Leading gaming applications include casino, poker, bingo, sports betting, live gaming, casual and fixed odds games. Playtech provides licensees with the tools to maximise cross-selling opportunities, player loyalty and yield, all through the powerful management interface - the IMS. The system's fully integrated, cross-platform capability enables players to access online, broadcast, mobile and server-based gaming terminals, through a single account. 

New licensees include existing online operators upgrading or diversifying their offering, land based casino groups, government sponsored entities such as lotteries, and new entrants making their online gaming debut, particularly in the newly regulated markets.

Founded in 1999, Playtech is headquartered in the Isle of Man and has over 1,000 employees located in development centres in five countries, the majority of whom are engaged in research and development of current and future gaming technologies.

www.playtech.com 

 

 

1.  Introduction

The Company today announces that it has entered into an agreement to acquire the entire issued share capital of PT Turnkey Services Limited.  On Completion, which is subject to satisfaction of certain conditions, including certain regulatory approvals, PTTS will be the holding company for the Target Group which carries out a range of complementary B2B online gaming service operations that provide support to the Group's licensees.

At the time of Playtech's flotation on AIM in March 2006, Playtech was granted various call options over affiliated companies ultimately controlled by Teddy Sagi (the "IPO Call Options").  The businesses to be acquired at Completion are broader than those included in the IPO Call Options and include certain assets in regulated and soon to be regulated markets representing future growth opportunities for the combined Group.  Certain assets and liabilities that Playtech does not wish to acquire will not be included in the Acquisition.  Accordingly, a reorganisation of the businesses and assets acquired is being undertaken such that the Target Group will, where practical, consist of newly incorporated companies and thereby significantly minimise exposure to historic liabilities of the businesses.

 

2.  STRATEGIC RATIONALE FOR the ACQUISITION

The main strategic opportunity for the Company is to enable the Group to further position itself in an advantageous position in the fast evolving gaming regulatory environment by enabling it to offer a range of ancillary services up to a full 'turnkey solution' to new licensees seeking a single supplier for establishing an online presence.

The Directors believe the Acquisition will uniquely position the Group and provide it with the ability to offer a full turnkey solution to partners in regulated and soon to be regulated markets, such as Italy, France, Spain and Germany, where operators and governmental entities have a strong incentive to develop an online presence to defend their local businesses.  Playtech will however remain a B2B provider and so is positioned as a potentially more attractive partner to other operators.

In addition to those discussions currently ongoing with the businesses to be acquired, Playtech's management has identified a number of further opportunities where a suite of software and ancillary services can be offered to potential licensees in countries that are seeking to regulate internet gaming activities in their jurisdictions.

3. DESCRIPTION OF THE BUSINESSES BEING ACQUIRED

On Completion, which is anticipated to take place on 30 June 2011, the Target Group will contain four separate divisions:

§ Marketing Services, which will provide affiliate management, customer management, data mining and statistical analysis, advertising and marketing services;

§ Operational Services, which will provide 24 hour end user support, and co-location hosting services for Licensees' game servers and player databases;

§ Advisory Services which will provide advice in relation to payment processing providers and monitor transactions for licensees and reconciles these from data in their back-end systems; and

§ Network Management Services, which will manage the day to day operation of the poker network (iPoker) including cross cage reconciliation and collusion prevention. 

4.  FINANCIAL INFORMATION

In the year to 31 December 2010, unaudited revenues for the Target Group were €90.2m and EBITDA was €18.9m.  This represents a 14% decrease from EBITDA of €22.0m in 2009, largely resulting from the withdrawal of the largest customer from the French market in the middle of 2010.  EBITDA for 2010, adjusted to exclude any income from France, was €13.1m.  As a result of the withdrawal from the French market, the marketing division has focused on more sophisticated management of affiliates aimed at reducing the volume of casual players and a greater focus on player retention and yield.  The annualised run rate in the second half of 2010, which excludes revenues and profits from France, gives pro-forma unaudited annual revenues of €81.4m and EBITDA of €19.2m after stripping out one-off items.

Historically, the Marketing Services division is the largest contributor in terms of revenue and approximately 70% of the revenues of the Target Group are derived from these businesses.  The main expenses of the division are payments to marketing affiliates and campaign costs and in the year to 31 December 2010 had unaudited revenues of €64.4m.  The Operational Services division is the next largest revenue generating division of the Target Group and had unaudited revenues in the year to end December 2010 of €13.2m.  The Advisory Services division and Network Management operations had unaudited revenues of €9.9m and €2.6m respectively.

5.  Acquisition PAYMENT TERMS AND Funding

 

The entire issued share capital of PTTS is to be purchased by Playtech for the Initial Consideration, which will be paid in broadly equal half yearly non-interest bearing instalments over a period of 30 months following Completion, subject to upwards or downwards adjustment based on completion accounts setting out the net working capital position of the Target Group.

The Additional Consideration based on the Target Group's performance in the 3 years following the completion of the integration process - which is expected to be no later than December 2011 - will become payable in cash, to the extent that, 7 times the calculated EBITDA of the Target Group in 2014 exceeds the Initial Consideration.  The Additional Consideration is capped at €140 million and will be paid in cash in four non-interest bearing instalments over the 18 months following the determination of the Additional Consideration. The right to receive Additional Consideration will be accelerated in certain limited circumstances including, subject to certain conditions, where the Target Group's total EBITDA for any two consecutive quarters prior to 30 June 2014 achieves a run rate which represents on an annualized basis, the payment of the maximum consideration provided the EBITDA for the first relevant quarter is at least €8m and the second quarter is greater than the first.  There are agreed principles for the allocation of revenues between the Group (in respect of software provision) and the Target Group (in respect of support services) under 'turnkey' contracts.

The detailed terms of the Share Purchase Agreement ("SPA") contain customary warranties, representations and indemnities, as well as non-solicitation covenants by the Seller.

6.  conclusion

 

Playtech has long recognised the benefits of being able to offer a full turnkey service to existing and potential licensees. The Acquisition will allow the Group to own outright a wide range of affiliate service providers that will significantly enhance its commercial proposition and competitive position in the expanding online gaming marketplace. In particular, the Directors consider that the opportunity to be a single source supplier of online gaming solutions will place the Group in a strong position in regulated and soon to be regulated markets.

 

END

 

 

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