Ladbrokes confirms Betdaq acquisition
Operator to pay initial consideration of 30m for betting exchange.
Ladbrokes chief executive Richard Glynn has struck a deal to acquire betting exchange Betdaq for an initial consideration of 30m, his third attempt in three years to broker a takeover of an online gaming company following his failed efforts to buy 888 and Sportingbet in 2011 and 2012 respectively.
The deal sees Ladbrokes take over Global Betting Exchange Alderney Limited “ the Alderney-licensed operator of the Betdaq business “ while also taking a 10% stake in the company’s Channel Islands-based technology provider TBH Guernsey Ltd. Following an initial payment of 4m for the stake in TBH Guernsey, the Gibraltar licensee will retain a call option to acquire the remaining shares in the business after four years.
The agreement will see half of the initial consideration settled in Ladbrokes shares, with an earn-out to be paid based on the growth in GBEA’s gross profits between the last financial year and the year ended 31 December 2016.
The 15m in shares will go solely to Betdaq owner Dermot Desmond, whose existing 2% stake in Ladbrokes “Will not be materially affected” according to a Ladbrokes spokesman.
Glynn said the “bolt on” acquisition “ which will be completed subject to relevant regulatory approvals “ “…[P]rovides us with an exciting opportunity to grow our share of wallet through the creation of a differentiated and comprehensive sports betting proposition for customers and also supports our drive for improved liability management.”
Glynn described Betdaq as “A well-regarded and well invested business and a close strategic fit for Ladbrokes.”
A Ladbrokes spokesman told eGaming Review that following today’s deal Betdaq would “continue to operate under a separate management structure for the present time” with Lewis Findlay heading up operations from the company’s Dublin office. He added that there were “no plans” to alter Betdaq’s current commission structure which stands at 3%. “We’re working to increase liquidity and the number of markets Betdaq offers”, he said.
“Further details of today’s agreement will be outlined during the company’s 21 February annual results presentation,” he said.
Outlining the rationale for today’s acquisition Ladbrokes said the deal “combines Ladbrokes’ global brand and materially improved sportsbook with a high quality, scalable betting exchange to create the most comprehensive sports betting service in the market; accelerates Ladbrokes’ strategy to grow digital revenues through investment in proprietary technology and delivery of best of breed products, providing a differentiated experience to customers; enables it to address the full spectrum of the broader sports betting market and access a greater share of existing and future customers’ betting expenditure with a large proportion of Ladbrokes’ customers already use a betting exchange; further enhances Ladbrokes’ liability management, with more flexible and lower cost hedging option” with the transaction expected to be earnings accretive this year.
A potential link-up between Ladbrokes and Betdaq was first mooted in January 2012, although at the time the UK press suggested it would take the form of a supplier deal rather than an acquisition.
Last July saw the first suggestions that Lads could be looking to acquire the exchange, with British newspaper The Times suggesting the company could be prepared to part with £50m for such a deal.
It was not until earlier this month that the operator confirmed talks had opened over an acquisition, with analyst Simon French of Panmure Gordon saying at the time: “Significant investment in product and marketing would likely be required for Betdaq to become a material profit contributor to Ladbrokes.”
French today reiterated his firm’s ‘Hold’ recommendation, saying: “We think 2013 will be a transitional year for the group as it seeks to rebuild profitability in its Digital division whilst trying to protect profit levels in its Retail divisions.”
Analyst Nick Batram of Peel Hunt described today’s move as “An interesting strategic development and one with relatively little downside,” however he retained his firm’s ‘Hold’ recommendation on Ladbrokes shares.
In a note this morning he described the potential benefits of upscaling the exchange as “substantial,” and said “The question is will the other traditional bookmakers look to cover Ladbrokes’ move? If so, then Betfair might become a bit more interesting.”
Aside from its core dot.com exchange, Betdaq last year entered a partnership with Italian operator Microgame which could see it supply the company with a dot.it exchange when that particular market opens up. it is unclear whether Ladbrokes’ acquisition of Betdaq will affect this agreement.
Italy’s exchange betting decree was approved by the European Commission in May last year, however interest has been limited with only Betfair and the Betdaq-Microgame partnership indicating that they will apply for a licence.
The acquisition of Betdaq comes follows Ladbrokes’ ultimately fruitless talks with 888 and Sportingbet in 2011, with merger talks with the latter terminated in October of that year.
Sportingbet has since been subject of a joint takeover from William Hill and GVC, with a deal worth £454m agreed late last year.