Betfair and the flotation tank

There is cautious optimism among the UK broking community that 2010 will see a rebound in the IPO market.

However, institutional investors remain wary.

Their appetite for new listings will not have been aided by London-listed asset manager Gartmore and Hong Kong-quoted aluminium producer Rusal trading significantly below float price within days of listing either side of the new year, following a near two-year hiatus in the new issues market.

More pertinently to eGaming Review readers, it is unlikely we will see a return to the flood of online gaming IPOs witnessed in 2005 and 2006, which was halted by UIGEA, cutting off a significant number in the pipeline.

Up till then, this industry had generally been well received, with investors eager to share in rapid growth and impressive cash generation.

But with volatile earnings and the seismic impact of UIGEA now on the sector’s CV, prospective businesses will need to offer something unique to entice institutional investors. However, one company may fit the bill.

Betfair’s mooted flotation valuation of £1.5bn would immediately make it the largest publicly traded online gaming business. At a historic multiple of 21 times reported EBITDA of £72m, this price tag would also be at a significant premium to the 8 times to 14 times trading range of its listed peer group.

For others in the sector, particularly those with more modest earnings, it may be a case of wait-and-see. Successful flotations in the first half of 2010 and a buoyant market could open a window in the autumn for others to enter the quoted arena.

Operators with clean histories and B2B providers with a diversified customer base could be best placed to take advantage.

But, for the moment, owners seeking an exit are likely to view a trade sale, or even private equity interest, as a safer bet.