Playtech set to splurge?27th January 2015 11:33 am GMT
Last year, Playtech parked the (London) bus at the ICE show in Excel Centre. At Earl’s Court, its stand was so big that executives dubbed it Abramovich’s yacht. It normally combines these outlandish displays with a big deal announcement. So what surprises does Playtech have in store this year?
Playtech’s search for that elusive “transformational” transaction continues. The hunt began in earnest when it banked £424m from the sale of its 29 per cent share in William Hill Online. A deal was thought to be nearing, when the company raised a further €315m with a bond issue just two months ago.
When bwin.party confirmed preliminary discussions about “a variety of potential business combinations” on the same day, it seemed only a matter of time before the inevitable deal was announced. It makes sense on so many levels, as discussed here, but there are some issues, which might make an ICE announcement unlikely.
The senior Playtech executive team including chief executive Mor Weizer and business development VP Uri Levy have met with bwin.party chief Norbert Teufelberger to discuss ways Playtech could help resuscitate the business.
Sources suggest Teufelberger is not interested in a Playtech rescue a la Betclic Everest or Ladbrokes.
“He just seems tired and wants to sell,” a source tells me. That should come as no surprise after the last few years. Teufelberger is a tough character with a thick skin but there must come a time when you have had enough of the struggle.
It is Levy’s job to identify targets and to structure the deals. There are enough potential targets around and there have been other discussions. But none of the potentially “transformational” deals are sure-fire hits. While Playtech could probably resuscitate bwin.party given the chance, there is too much uncertainty around its main markets.
Look at the regulatory situation in Germany, the impact of the point of consumption (POC) tax in the UK or the economic situation in Italy and Spain. The same sort of concerns surround Ladbrokes – another potential acquisition, which is going cheap.
Ladbrokes’ share price has dropped nearly 25 per cent during the past year. Its market capitalisation has sunk to just £1.05bn. Similarly, bwin.party’s share price dropped nearly 40 per cent to a low of Just £0.80 in September last year. Consistent sale rumours have helped it to recover to £1.07 but its market cap is just £881.45m. These are gettable targets for Playtech.
However, the political situation in the UK surrounding fixed odds betting terminals is still extremely volatile. The digital business is recovering (with Playtech’s help) but it has not recovered with sufficient haste to save Richard Glynn’s job at Ladbrokes and POC adds another level of uncertainty to the mix.
The Playtech brains trust would rather buy something with a future rather than fixing something from the past – despite the fact that is exactly what it has done with many of its biggest projects.
A look at some of Playtech’s most successful acquisitions (for example, Virtue Fusion, GTS, Mobenga or Geneity) reveals a list of companies that have added something to the Playtech portfolio. Even the recent acquisition of Aristocrat Lotteries, which seemed low-key on the surface, gifted Playtech an introduction to Norsk Tipping that it will likely extend.
Perhaps, this deal holds the key to the next stage in Playtech’s development. The company sent a significant delegation to the World Lottery Summit in Rome in November and views this segment as a source of untapped potential. There is no doubt within the minds of Weizer and co. that it should be challenging GTECH and Scientific Games to get a greater share of the lottery market – online and off.
Those two companies – with their acquisitions of IGT and Bally respectively – threw down the gauntlet last year. The Playtech team feels there is a pressing need to make a statement. But obviously it needs to be the right statement.
There was one significant company left on the sidelines during last year’s M&A splurge – Intralot. With Greece in economic turmoil, the lottery industry’s third largest supplier saw its market cap slip around 50 per cent during the past year to just €218m. For Playtech, Intralot could be a bite-sized chunk well worth gobbling up.