Proposed Acquisition of TradeFX

RNS Number : 2785J

Playtech PLC

02 April 2015

 

PLAYTECH PLC

("Playtech" or the "Company")

Strategic entry into a new and growing vertical through the acquisition of TradeFX

Playtech is pleased to announce that it has conditionally agreed to acquire a 91.1 per cent. fully-diluted stake in TradeFX Limited ("TradeFX"), an online CFDs and binary options broker and trading platform provider.

The consideration payable comprises an initial cash payment of €208 million and an earn out payment of up to €250 million based on future performance.

Highlights

·    Compelling opportunity to enter growing and complementary vertical driven by similar core competencies

·    Directly in line with Playtech's strategy to acquire profitable, regulated, highly cash generative businesses with market-leading positions

·     Experienced management team, with a proven track record, who will remain with the business

·     Consideration at attractive multiple of up to 8x adjusted EBITDA

·     Business at inflection point with current annualised EBITDA run rate significantly ahead of 2014

·     Acquisition immediately significantly earnings enhancing

·     Acquisition is classified as a related party transaction

·    Major Independent Shareholders approached; positive response received with indicative support of approximately 23.3 per cent. of Ordinary Shares held by Independent Shareholders

·   Brickington Trading Limited, Playtech's largest shareholder, agrees to 12 month lock-up in respect of its Ordinary Shares

Overview of TradeFX

·    Profitable and growing online CFDs and binary options broker and trading platform provider, providing services in more than 100 countries and in over 25 languages, with both B2C and B2B offerings. Its principal B2C brand is markets.com

·    Founded in 2009, employing over 500 staff globally, with offices in five countries

·  Proprietary technology and CRM capabilities focused on increasing customer conversion rates and maximising customer lifetime value

·    Established platform in a dynamic and fragmented growth market, with similar characteristics to the gambling industry, providing access to a broad range of consolidation opportunities

·    2014 EBITDA of $34.9 million with high cash conversion and group margin of approximately 40 per cent

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

"I am delighted to announce the proposed acquisition of TradeFX which provides entry into a highly complementary new market vertical where our combined operational superiority will enable exciting growth opportunities. In addition to being immediately and significantly earnings enhancing, the payment terms for the acquisition are weighted towards future financial performance of the business. TradeFX's proven management team has a strong cultural fit with our business and is incentivised to stay with the enlarged Group. We look forward to working with them to create additional shareholder value.

"The acquisition adds weight to the strong momentum with which we have started the year and which has continued throughout the first quarter. Following the acquisition, Playtech will retain significant resources to continue to pursue further acquisition opportunities. We will provide a further update on trading performance in our quarterly trading update which will be announced later this month."

There will be a briefing for analysts held at 9:30am today at Bell Pottinger's offices, 6th Floor Holborn Gate, 26 Southampton Buildings, WC2A 1AH. For further details please contact 0203 772 2496.

Canaccord Genuity is acting as sole sponsor and joint financial adviser to the Company in connection with the Transaction. UBS Investment Bank is acting as joint financial adviser to the Company in connection with the Transaction.

Shareholders should read this preceding summary in conjunction with the full text of the following announcement and its appendices, together with the circular which is expected to be published today.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Last time and date for receipt of a Form of Proxy for the General Meeting           10.00 a.m. on 20 April 2015

Last time and date for receipt of CREST Proxy Instructions                               10.00 a.m. on 20 April 2015

General Meeting                                                                                            10.00 a.m. on 22 April 2015

Completion of Transaction*                                                                                                   31 May 2015

Notes:

1.             All time references in this document are to London time unless otherwise stated.

2.             The dates and times given in this document are based on the Company's current expectation and may be subject to change.

3.             Any changes to the timetable set out above will be announced via a Regulatory Information Service.

* Subject to satisfaction of relevant conditions, including approval from CySEC. If such conditions have not been satisfied or waived before 31 May 2015, completion of the Transaction will occur on the last business day of the month in which such approvals are received subject to a long stop date of 30 September 2015.

For further information please contact:

Playtech PLC (C/O Bell Pottinger)              [phone]

Mor Weizer, Chief Executive Officer

Ron Hoffman, Chief Financial Officer

Andrew Smith, Head of Investor Relations

Canaccord Genuity Limited                       [phone]

(Sole sponsor and joint financial adviser)

Bruce Garrow

Piers Coombs

Cara Griffiths

UBS Investment Bank                                [phone]

(Joint financial adviser)

Benjamin Crystal

Rahul Luthra

Bell Pottinger                                             [phone]

David Rydell

Olly Scott

David Bass

James Newman

Information on Playtech

Playtech develops unified software platforms and content for the online and land-based gaming industry, together with providing a range of ancillary services such as marketing, CRM services and hosting.

The Group's capabilities enable the delivery of an integrated software or turnkey solution, with players accessing 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 newly-regulated markets.

Founded in 1999, Playtech is listed on the London Stock Exchange and has more than 3,900 employees located in thirteen countries. Its leading gaming applications include casino, bingo, poker, sports betting, live, mobile and social gaming, casual and fixed odds games.

www.playtech.com

PLAYTECH PLC

Strategic entry into a new and rapidly growing vertical through the acquisition of TradeFX

Introduction

The Company announces that the Group has conditionally agreed to acquire a 91.1 per cent. fully-diluted stake in TradeFX.

The consideration payable comprises an initial cash payment of €208 million and an earn out payment of up to €250 million based on future performance.

Overview of the TradeFX Group

The TradeFX Group is an established, profitable and growing online CFDs and binary options broker and trading platform provider, offering services in more than 100 countries and in over 25 languages through three principal business segments. The TradeFX Group operates two B2C businesses, the first providing customers with a trading platform for CFDs trading (with its principal B2C brand being markets.com) and the second offering a proprietary trading platform for the trading of binary options, both across multiple channels. In addition, the TradeFX Group provides a turnkey offering, including a white label solution, for B2B clients, in return for a revenue share. The TradeFX Group is licensed and regulated in the EU and South Africa.

The TradeFX Group's business was established in Cyprus in 2009 and has since grown both organically and through acquisitions. TradeFX is currently owned 86.45 per cent. by Telesphere, a subsidiary of a trust for the benefit of Mr. Teddy Sagi, with the remaining equity owned principally by management of the TradeFX Group. The TradeFX Group employs over 500 staff globally, with offices in five countries.

The TradeFX Group has internationally diversified revenue streams. In 2014, over 60 per cent. of revenue generating activity was locally regulated with the balance being on-boarded under its CySEC licence. Since its inception, the TradeFX Group has adopted a conservative approach to regulatory compliance. Accordingly, the TradeFX Group blocks clients from jurisdictions where it believes such services are prohibited or limited by way of specific local regulatory requirements. The TradeFX Group expects some key markets where CFDs and binary options trading is not currently locally regulated, to become regulated in the near term.

The TradeFX Group's financial performance in 2014 presented EBITDA of $34.9 million, with an average margin across the three segments of 40 per cent.  reflecting the strength of the business driven by its marketing capabilities and technology. For the year ended 31 December 2014, the TradeFX Group generated pre-tax profit of $31.8 million and had gross assets of $94.3 million.

Current trading of the TradeFX Group

From 1 January 2015 to 29 March 2015, the TradeFX Group has benefitted from the execution of its strategy, with the investments made in 2014, including the introduction of a mobile application and the launch of a programmatic media buying technology, starting to generate significant returns on investment and positive momentum across all key business metrics, in both the B2C and B2B segments. During this period, total revenues for the TradeFX Group were approximately $27.6 million representing significant growth over the first quarter of 2014.

The Directors believe the most appropriate KPIs for the TradeFX Group's business performance will focus on total Active Customers and FTDs. The table below demonstrates the strength in the KPIs during the early months of 2015 compared to the first quarter of 2014.

$m	Q1 2014	Q1 2015*
Net revenue	14.7	27.6
EBITDA**	0.6	12.3
Active customers - core business CFDs ('000)	20.0	23.9
FTDs - core business CFDs ('000)	8.4	10.8

* Q1 2015 TradeFX management accounts: unaudited data from 1 January 2015 to 29 March 2015

** Unaudited EBITDA from 1 January 2015 to 29 March 2015, with a weighted allocation of costs

Accordingly, the Directors believe the significant growth in revenues during this period and the strength of the momentum demonstrated by the KPIs support confidence in the potential contribution the TradeFX Group can deliver to the overall success of the Group.

Background to and reasons for the Transaction

The Transaction is in line with the Board's strategy to acquire market leading businesses in regulated, high growth industries, with similar fundamentals to the Group's existing operations and capabilities. The Board reviews the most efficient, value enhancing means for deploying its capital on an ongoing basis. Having identified CFDs, together with binary options, as attractive growth markets, underpinned by robust custom technology and driven by marketing capabilities and CRM expertise, the Board has spent considerable time evaluating various acquisition opportunities in this sector, against a rigorous set of internal financial and operational criteria.

The TradeFX Group provides a broad range of underlying instruments and a scalable business model, with a focus on offering online customers the ability to trade. In addition, the TradeFX Group's senior management team has a strong technical background which, combined with their experience of online marketing and customer acquisitions, has led to an emphasis on developing an innovative, efficient offering, which is accessible by, and attractive to, its customers. The TradeFX Group's management team will continue to run the business following Completion as part of a new division within the Group. The Directors believe that by combining the technology and marketing expertise of the Group and the TradeFX Group, the Group has the ability to achieve further significant and accelerated growth in the TradeFX Group's business.

The Directors believe that the TradeFX Group is an exciting business providing a substantial opportunity focused on the delivery of a CFDs trading platform to customers in a rapidly growing market. In addition, the complementary binary options offering provides potential for further growth and the opportunity to leverage the Group's B2B business model.

Many trading platforms are characterised by a focus on one of three broad competencies to drive growth, being (i) CRM and user acquisition capabilities, (ii) proprietary technology, or (iii) product expertise. The Directors believe that the TradeFX Group is a differentiated hybrid, excelling in all three areas and offering a full product suite underpinned by comprehensive support services.

The TradeFX Group and its management have been well known to Playtech since it was established in 2009 and offer a strong cultural as well as strategic fit. Given the substantial investment programme in the TradeFX Group's technology, mobile and trading platforms, the Directors believe that the TradeFX Group is at an inflection point in its development and that the timing of the acquisition gives Playtech the opportunity to enjoy continued growth in the TradeFX Group, driven by both the underlying market and the increasing operational strength and capabilities of the TradeFX Group itself.

The TradeFX Group's strategy is formed of five key pillars of growth, namely (i) mobile penetration, (ii) expansion into new geographies, (iii) data analytics, (iv) growth of B2B partnerships; and (v) selective strategic M&A. The Directors believe that, given Playtech's existing IMS, technology and CRM capabilities, it is well placed to accelerate many of the TradeFX Group's growth initiatives. The TradeFX Group's B2B segment is currently underdeveloped relative to its B2C businesses and the Directors believe opportunities exist to form strategic partnerships in new markets and to launch new binary option technology deals. The TradeFX Group also provides Playtech with the scale to participate as a consolidator in a relatively fragmented market should attractive M&A opportunities arise.

The Directors also believe that there will be opportunities to cross sell the TradeFX Group's technology and capabilities into Playtech's existing client base.

Benefits of the Transaction

The Transaction is expected to be significantly enhancing to the Group's earnings immediately following Completion.

The Directors believe the Transaction represents the best entry point into the growing online CFDs and binary options industries, which are regulated and complementary to the Group's existing business. The Transaction gives the Group access to the positive growth trends in this dynamic sector and helps to diversify the Group's earnings by product, geography and customer base and improve its quality of earnings. The sector remains somewhat fragmented and the Directors believe that this is likely to give rise to further acquisition opportunities. As an illustration of this, the TradeFX Group recently secured an option to purchase another mid-size B2C broker which, if exercised, will further strengthen the TradeFX Group's customer base and is expected to generate both cost and revenue synergies, including through the migration of the customer base to the TradeFX Group's proprietary trading platforms.

As part of the Transaction, the Group is securing a highly experienced management team who, through their retained shareholding in the TradeFX Group, are directly aligned with the interests of the Group to drive the growth of the business in the coming years.

Terms of the Transaction

Dowie Investments Limited, a wholly owned subsidiary of the Company, has entered into a conditional share purchase agreement under the terms of which it has agreed to acquire from the Sellers 95.0 per cent. of the issued share capital of TradeFX (including the entire 86.45 per cent. shareholding of Telesphere). Immediately prior to Completion certain existing option holders under the ESOP shall have their vested options cancelled in exchange for payments from Dowie equivalent to the sums they would have received had they exercised such options immediately prior to Completion and been sellers under the SPA. On Completion, Dowie will own 95.0 per cent. of the issued share capital of TradeFX (being an effective interest of approximately 91.1 per cent. of TradeFX's fully-diluted share capital).

The maximum purchase price payable by the Group to the Sellers and the Cancelled Option Holders is €458 million ("Maximum Purchase Price"). The initial consideration of €208 million ("Initial Consideration") is payable by Dowie in cash on Completion save that €10 million of such monies will be retained by the Company pending a post-Completion working capital calculation, on a cash-free, debt-free basis. Certain monies historically advanced by Telesphere to the TradeFX Group for the purposes of meeting regulatory capital requirements (currently in the region of €25 million) will be replaced by funds provided by Dowie on Completion.

Additional cash consideration of up to €250 million (being the difference between the Initial Consideration and the Maximum Purchase Price) will be payable by the Company to the Sellers and the Cancelled Option Holders based on the TradeFX Group's financial performance for the financial year ending 31 December 2017 ("Additional Consideration"). The Additional Consideration will be calculated by reference to eight times the adjusted EBITDA of the TradeFX Group for the financial year ending 31 December 2017, net of the Initial Consideration.

Completion of the Transaction is subject, inter alia, to approval by the Independent Shareholders of the Resolution at the General Meeting and satisfaction of certain regulatory and other customary conditions including the approval of CySEC. The Company currently expects the Transaction to be completed on 31 May 2015 and the long stop date for Completion under the SPA is 30 September 2015.

Dowie has separately agreed certain arrangements conditional on Completion with the Management Shareholders and the remaining holders of options under the ESOP following Completion as regards their continued and future shareholdings in TradeFX, which include the following:

·    The Management Shareholders will remain involved with the TradeFX Group's business for at least 3 years following Completion.

·    The Management Shareholders and remaining option holders have granted Dowie a call option to acquire all remaining issued and to be issued shares in TradeFX. The call option can be exercised with effect from 1 January 2019 until 31 December 2021. The purchase price for such shares will be calculated by reference to eight times the adjusted EBITDA of the TradeFX Group in the financial year preceding the date of exercise and otherwise on a similar basis to the Additional Consideration, but subject to an overall cap equivalent to a valuation of the entire TradeFX Group of approximately €913.2 million (which would equate to approximately €81.3 million for their 8.9 per cent. fully-diluted stake in TradeFX).

·    The call option lapses in the event of a sale of the entire issued share capital of the TradeFX Group or an initial public offering of the TradeFX Group.

·    Customary drag along rights will apply in circumstances where the holders of 75 per cent. of the issued share capital of the TradeFX Group wish to sell their shares in the TradeFX Group to a third party. In addition, minority shareholders will benefit from customary tag along rights.

Related parties

Telesphere is a wholly owned subsidiary of a trust of which Mr. Teddy Sagi (one of the founders of the Group's business) is the ultimate beneficiary. Telesphere is selling its entire holding in the TradeFX Group as part of the Transaction, representing approximately 86.45 per cent. of the issued share capital of TradeFX. Brickington Trading Limited, a wholly owned subsidiary of another trust of which Mr. Sagi is the ultimate beneficiary, holds 98,645,782 Ordinary Shares, representing approximately 33.6 per cent. of the Company's issued share capital.

Accordingly, the Transaction is classified as a related party transaction under the Listing Rules and is subject to, and conditional upon, inter alia the approval of the Independent Shareholders at the General Meeting. The Transaction is classified as a Class Two transaction under the Listing Rules on account of its size.

Under the Listing Rules, Brickington Trading Limited and its associates are precluded from voting at the General Meeting in relation to the Transaction. Accordingly, Brickington Trading Limited will not vote on the Resolution and has undertaken to take all reasonable steps to ensure that its associates do not vote on the Resolution.

In addition, Brickington Trading Limited has agreed not to dispose of any Ordinary Shares for a period of at least 12 months following Completion other than with the consent of Canaccord Genuity.

General Meeting

The Transaction is classified as a related party transaction for the purposes of the Listing Rules and is therefore subject to, and conditional upon, inter alia, the approval of Independent Shareholders.

A General Meeting will be convened to be held at The Sefton Hotel, Harris Promenade, Douglas, Isle of Man at 10.00 a.m. on 22 April 2015 at which the Resolution will be proposed.

Recommendation

The Board, which has been so advised by the Company's sole sponsor and joint financial adviser, Canaccord Genuity, considers the terms of the Transaction to be fair and reasonable so far as Shareholders are concerned. In providing advice to the Board, Canaccord Genuity has taken into account the Board's commercial assessment of the Transaction.

In addition, the Board has also been so advised by the Company's joint financial adviser, UBS Limited. In providing advice to the Board, UBS Limited has taken into account the Board's commercial assessment of the Transaction.

The Board considers the Transaction to be in the best interests of Shareholders as a whole.

Accordingly, the Board unanimously recommends that Independent Shareholders vote in favour of the Resolution, as the Directors intend to do in respect of their own beneficial holdings of 68,500 Ordinary Shares, representing approximately 0.02 per cent. of the issued share capital of the Company as at 1 April 2015, being the latest practicable date prior to publication of this document.

The Company has received indicative support in respect of the Transaction from Independent Shareholders who have aggregate holdings which represent approximately 23.3 per cent. of the issued share capital of the Company held by Independent Shareholders.

IMPORTANT NOTICE

This announcement has been issued and is the sole responsibility of Playtech PLC and has been prepared for the purposes of complying with the laws of the Isle of Man and the Listing Rules and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any other jurisdiction. 

A copy of the circular, when published, will be available from the registered office of Playtech and on Playtech's website at www.playtech.com.

Canaccord Genuity, which is authorised and regulated in the United Kingdom by the FCA, is acting exclusively for the Company and no-one else in connection with the Transaction and will not be responsible to any person other than the Company for providing the protections afforded to its clients or for providing advice in relation to the contents of this document or the Transaction.

UBS Limited, which is authorised by the PRA and regulated in the United Kingdom by the FCA and the PRA, is acting exclusively for the Company and no-one else in connection with the Transaction and will not be responsible to any person other than the Company for providing the protections afforded to its clients or for providing advice in relation to the contents of this document or the Transaction.

Apart from the responsibilities and liabilities, if any, that may be imposed on Canaccord Genuity and UBS Limited under FSMA or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where the exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, Canaccord Genuity and UBS Limited accept no responsibility whatsoever and make no representation or warranty, express or implied, as to the contents of this document, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Ordinary Shares or the Transaction. Canaccord Genuity and UBS Limited accordingly disclaim, to the fullest extent permitted by law, all and any liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this document or any such statement.

This announcement contains forward-looking statements which are subject to assumptions, risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by those forward-looking statements. Each forward-looking statement is correct only as of the date of the particular statement. The Company 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 Listing Rules, the Prospectus Rules, the Disclosure and Transparency Rules, the rules of London Stock Exchange plc or by law.

 

DEFINITIONS

The following definitions apply throughout this announcement, unless stated otherwise:

Board	the board of the Company comprising the Directors
Canaccord Genuity	Canaccord Genuity Limited of 88 Wood Street, London EC2V 7QR
Cancelled Options	the vested options over shares in the share capital of TradeFX granted pursuant to the ESOP which are to be cancelled immediately prior to Completion on terms whereby the option holders shall receive payments from Dowie equivalent to those they would have received if they had exercised their options immediately prior to Completion
Cancelled Option Holders	the holders of Cancelled Options
Completion	completion of the Transaction in accordance with the SPA
Company or Playtech	Playtech PLC
CREST	the paperless settlement system operated by Euroclear UK & Ireland Limited to facilitate the transfer of title to, and the holding of, shares in uncertificated form
CySEC	the Cyprus Securities and Exchange Commission
Dowie	Dowie Investments Limited, a wholly owned subsidiary of the Company
Directors	the directors of the Company
DTR's or Disclosure and Transparency Rules	the Disclosure and Transparency Rules of the FCA made in accordance with section 73A of FSMA
EEA	the European Economic Area
EU	European Union
ESOP	the employee share option plan of TradeFX
FCA	the Financial Conduct Authority
Form of Proxy	the form of proxy accompanying this document for use by Independent Shareholders in relation to the General Meeting
FSMA	the Financial Services and Markets Act 2000 (as amended)
General Meeting	the general meeting of the Company to be held at The Sefton Hotel, Harris Promenade, Douglas, Isle of Man on 22 April 2015 at 10.00 a.m. (or any adjournment thereof), notice of which is set out at the end of this document
Group	the Company and its subsidiaries from time to time
Independent Shareholders	all Shareholders other than Brickington Trading Limited and its associates
Listing Rules	the Listing Rules of the FCA made in accordance with section 73A of FSMA
Management Shareholders	the members of the management team of the TradeFX Group who will continue to hold shares in the issued share capital of TradeFX  following Completion
Minority Sellers	those persons (other than the Principal Seller) selling shares in the issued share capital of TradeFX on Completion other than the Principal Seller
Ordinary Shares	ordinary shares of no par value in the capital of the Company
Principal Seller or Telesphere	Telesphere Services Limited
PRA	the UK Prudential Regulation Authority
Prospectus Rules	the rules made for the purposes of Part VI of FSMA in relation to the offer of securities to the public and admission of securities to trading on regulated markets
Registrars	Computershare Investor Services (Isle of Man) Limited, c/o, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY
Resolution	the ordinary resolution to approve the Transaction as set out in the notice of General Meeting at the end of this document
Sellers	the Principal Seller and the Minority Sellers
Shareholders	the holders of the Ordinary Shares
Share Purchase Agreement or SPA	the share purchase agreement between the Company, the Principal Seller and the Minority Sellers dated 1 April 2015 in connection with the Transaction, details of which are set out in Part III of this document
subsidiary or subsidiaries	as defined in section 1159 of the UK Companies Act 2006 (as amended)
TradeFX	TradeFX Limited
TradeFX Group	the TradeFX Group and its subsidiaries from time to time
Transaction	the proposed acquisition by Dowie of 95.0 per cent. of the issued share capital of TradeFX and the cancellation of the Cancelled Options

 

GLOSSARY

Active Customer	a customer who makes at least one trade using real money during a rolling 12 month period
binary option	an option in which the payoff can take only two possible outcomes
CFD	a contract for difference
CRM	client relationship management
EBITDA	earnings before interest, tax, depreciation and amortisation
FTD	a first time depositor, being a customer who has deposited real money into their account with TradeFX Group for the first time
IMS	information management system

 

END

 

 

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