Playtech could exercise call option to finance USD 500-750m acquisition of undisclosed marketing player

This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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Playtech, the British Virgin Islands-headquartered UK-listed provider of gambling software, is actively looking at a number of acquisitions, including a USD 500-750m deal to take over an undisclosed marketing player, chief finance officer Shuki Barak told Mergermarket.

In a face-to-face interview with this news service, Barak explained that Playtech is not ”shy to talk about acquisitions” since M&A plays an important role in speeding up growth. The company has a call option, which is based on a 5.5x multiple over annual profits of USD 500m, he said.

The call option is to expire in March 2011 and could be exercised in 2010 to purchase a marketing company, as is currently being assessed, the CFO said. He referred to Jefferies and Deutsche Bank as advising on the potential deal.

According to Barak, the operation will be 2-3x bigger than Playtech’s USD 250m deal with William Hill in 2008. He described the William Hill transaction as unique in its financial structure, but not in terms of cash expenditure, as ”we can now afford half a billion acquisition using current credit facilities.”

Meanwhile, Playtech is assessing four smaller targets, including a hosting provider, a customer services specialist and a payment advisory firm, the CFO said. The management is also planning to finalize between 10-15 licence agreements in 2009.

Barak ruled out that Playtech would bid for distressed gaming operators, the likes of Spanish listed Codere. He confirmed that the company would stick to its core business in software development and will not try to access operational activities. ”As a pure software supplier, we have no intention of going into operations, as it would create a conflict of interest. We could only consider a minority stake investment in a gaming operator, but this is unlikely to happen in the short term,” he said. ”Our 800 employees are entirely focused on software development, which gives us a competitive advantage over our rivals,” he added.

Playtech reported revenues of EUR 111.5m in 2008 with adjusted EBITDA of EUR 73m, implying an operating margin of 65%.

Barak underlined that the company is cash positive with EUR 68.7m cash from operations and EUR 31.6m of net cash. He identified privately held Isle of Man- based Microgaming Software Systems as Playtech’s main competitor.

On 19 October 2008, Playtech entered into an agreement with William Hill Organisation Limited, a subsidiary of William Hill Plc, a provider of fixed odds bookmaking services in the UK, for the establishment of a jointly owned entity called WH Online. The new entity was meant to facilitate the integration of the online businesses of WH together with the businesses and contracts (comprising an affiliate marketing business, customer services operation with gaming brands and websites) which were previously purchased and then contributed by Playtech. The transaction was completed on 30 December 2008.

Playtech has a 29% stake in WH Online, which can be further increased up to 32% depending on certain conditions relating to the integration of the activities.

The company has a market cap of GBP 1.1bn.

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