Five talking points: Intertain's £425m Gamesys deal

Intertain’s £425m acquisition of Gamesys’ Jackpotjoy, Starspins, and Botemania brands was one of the industry’s worst kept secrets before it was officially announced yesterday.

The deal is transformational for Intertain, which was spun out from fellow Canadian firm Amaya and listed on the Toronto Stock Exchange less than 12 months ago – and the egaming industry as a whole. The acquisition will see the Toronto-based firm become one of the largest online bingo operators in the world, placing it firmly among the industry’s power players.

But what exactly does this deal tell us about Intertain’s future? And where does it leave Gamesys? Here are five key takeaways from yesterday’s announcement:

1) Brand building

The acquisition is the most complex deal undertaken by Intertain to date. For its £425m the Toronto-based firm will acquire Gamesys’ key brands; Jackpotjoy, Starspins, and Botemania, plus player data. Gamesys, however, will retain ownership of the platform and games, and as part of the deal will supply the technology and content to Intertain for 10 and 20 years respectively. What happens after that is unclear.

Having spent a great deal on the brands themselves, Intertain now has a 10-year period to cash in on the strength of the existing brand while potentially building its own bingo software, or acquiring it. Its acquisitive nature would suggest the latter and as a listed firm its investors will want Intertain to take full control over its technology.

2) What next for Gamesys?

While Intertain has undoubtedly secured a valuable asset in the Jackpotjoy, Starspins, and Botemania brands, Gamesys has walked away from the deal in good shape. They will cash in with extra multi-million pound performance payments should the brands meet profit targets for Intertain over the coming year.

eGR understand that Gamesys will have its hands tied for the next two years with a non-compete clause for online bingo, but after that they are free to power new brands through B2B and B2C agreements, and few would doubt the firm could repeat its Jackpotjoy succes under new brands.

The firm still owns the technology platform and game content, which it will supply to Intertain for the foreseeable future. Gamesys also has its B2C Virgin Games subsidiary, and a presence in the US in New Jersey where it has partnered with Tropicana and has claimed a decent share of the online casino market.

What isn’t yet clear, however, is whether Gameys or its future B2B partners, will be able to compete with its old brands in the years to come.

3) Targetting social

Intertain CEO John FitzGerald has made no secret about wanting to enter the social casino space in the past, and after yesterday’s deal he will do just that and in a pretty big way.

The Jackpotjoy social casino launched globally back in 2011 and, according to Eilers Research, has around 1.2m active users placing it among the top 10 largest social sites in the world. But Intertain has grander plans for the social sector, and will “build on the success” of Jackpotjoy social by launching a Starspins-branded social casino offering in the first half of the year.

Whether the Starspins brand will enjoy the same success as Jackpotjoy remains to be seen, but it is a statement of intent from the Canadian firm as it looks to take on the sector’s largest and most powerful operators.

4) Instant profit boost

Some may question the true value of purchasing a brand and not the technology required to power it. But the Jackpotjoy brand in the UK and Sweden is extremely profitable and has room to grow geographically. On announcing the deal Intertain revealed that in the 12 months ended September 2014, the Jackpotjoy business alone generated £131m in gross win and £67m in EBITDA, representing a margin of 51%.

In comparison, Gamesys’ full-year EBITDA for the period ended 31 March 2014 was £53.1m, which suggests Jackpotjoy is the driving force behind the firm’s profitability. And with Intertain having already identified synergies between its other bingo brands, including Costa Bingo, and growth in other markets likely as the likes of the Netherlands and Germany regulate, Jackpotjoy’s future as a highly cash-generative brand looks secure.

5) Investment appetite remains strong

After the huge sums Amaya Gaming was able to raise for its acquisition of Rational Group, it seems the appetite for egaming investments in Canada shows no signs of abating. Crucially for Intertain, Gamesys makes its profits in regulated territories and that equates to sustainable value for investors.

Both Amaya and Intertain have been among the highest yielding stocks on the Toronto Stock Exchange. The awareness of online gaming stocks has gone through the roof – and should that filter down to the US, the North American spending spree for profitable European egaming firms may only have just begun.