Analysis - Why bingo operator Intertain is hearing London calling

Analysis - Why bingo operator Intertain is hearing London calling

Monday, August 1, 2016 Posted by Andy McCarron
How Intertain ended up backing its UK strategy and the pitfalls that await

There's a degree of circularity about the corporate life of Intertain, the presently Toronto-listed online gambling operator that is now looking to list in London.

When Amaya caught the industry by surprise in the summer of 2014 with the $4.9bn leveraged PokerStars buyout, Intertain looked to be playing the part of a mini-me, first swallowing up Costa Bingo’s owner Mandalay Media in a deal worth up to £60m, then swooping for the Scandinavian-focused Vera & John for €81m before truly stamping its own mark on the sector with the £426m JackpotJoy acquisition in April last year.

For the flamboyant then chief executive John Kennedy Fitzgerald, it seemed that the sky was the limit. The company was on the up and so was Toronto, staking a claim to be the premier home of the most ambitious and bold listed gambling companies looking to finance ever larger deals and usurping London as the go-to home for listed online gambling companies.

Since those heady days, however, the world has somewhat turned on its axis. Amaya remains an online gaming behemoth, but it has lost its chief executive David Baazov (perhaps temporarily) to a suspected share fraud investigation. Meanwhile, Intertain similarly saw its own boardroom pied piper depart when Fitzgerald was forced to resign after an internal committee uncovered improprieties relating to the company’s management incentive scheme. This followed a detailed though erroneous public attack by short-selling hedge fund Spruce Point Capital Management which unnerved investors even if its detailed barbs largely missed the target.

To replace Fitzgerald and to attempt to steady the ship – and potentially find a buyer for the business - the Intertain board convinced Andrew McIver to don his corporate suit once again for the first time since the sale of Sportingbet to the William Hill/GVC consortium and take on the role of chief executive (and also adding ex-Gala Coral chairman Neil Goulden to the board). Despite a number of preliminary enquiries, the company said last week it would be pursuing a London listing while retaining the existing shareholder base via a simple one-for-one share swap in old Intertain and the new ListCo.

So a vote of confidence in a post-Brexit City of London a hub for listed online gambling companies then? Well, to a degree. The primary listing move is very much a plan B after the company received “no definite proposals” from third parties. Moreover, it’s a plan that is likely to come with some additional financing. In its press release, the company said that is “actively exploring” debt financing in order to ensure it can cover the earn-out obligations due to the Gamesys and Vera & John vendors in June of next year. In the last results statement from the company these obligations amounted to C$390m.

That the earnout targets have been hit should be seen as a positive, proving the worth of each business and their respective price-tags. The Intertain first quarter figures show JackpotJoy’s revenues rising 20% year-year-year to £44.5m in the three months to March (with the mobile games offering Starspins proving the standout product with revenues rising by three digits). Meanwhile, Vera & John saw total revenues for the first quarter rise 53% to €16.7m, a performance the company attributed to a successful affiliate marketing effort.

All of which makes is perhaps surprising that given the current state of fervor surrounding M&A opportunities in the gambling sector a buyer for the business couldn’t be found. The earnout – and the cash that will need to be raised to pay for it – provides part of the answer, as does the existing debt of circa $450m (as of the first quarter).

Then there is the question of what exactly any acquirer would be buying. Intertain owns the JackpotJoy name and has a 10-year services agreement signed with Gamesys, but the latter retains hold of the technology and to an extent the marketing skills. (As per the original agreement with intertain, Gamesys makes all the relevant marketing and operational decisions for JackpotJoy).

As if to emphasise the degree to which Gamesys has retained a lot of the skills and team that brought such success with JackpotJoy, the company is thought to be close to launching a BetHotShot offering that it is rumoured might potentially be a precursor to a full Virgin Bet offering later this year.

McIver himself will be well aware of the potential of any ‘new’ Gamesys business. He admitted in the conference call that accompanied his appointment that he had twice approached the old Gamesys while he was at the head of Sportingbet, first in the early 200os when he looked to buy the business and then in 2010 and 2013 when he said he was hoping to merge with it. “It’s great to have the opportunity to be reunited with what has been a unique and industry-leading asset,” he told analysts.

Sources suggest McIver remains highly respected in the City and that his appointment (and to a lesser extent Goulden’s) will give new and old investors confidence that he can do a job with this company and - in all likelihood - plump it up for sale at a later date. Moreover, with the other uncertainties surrounding the business environment in the UK at present, Intertain will be welcomed with open arms by a City looking to prove the UK is open for business. The fact that it is a gambling business will be of secondary importance.

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