Proposed Acquisition of Ava Trade Ltd.

PLAYTECH PLC

("Playtech" or the "Company" )

Proposed Acquisition of Ava Trade Ltd. and new Revolving Credit Facility

Playtech is pleased to announce that its subsidiary, TradeFX Limited ("TradeFX"), has entered into a share acquisition agreement under the terms of which it will acquire the entire issued share capital of Ava Trade, an online B2C CFD broker over which TradeFX had secured an option to purchase prior to the acquisition of TradeFX by the Playtech Group.

The consideration payable to the Sellers under the terms of the Transaction is US$105 million, which is subject to a post-Completion working capital calculation on a cash-free/debt-free basis. Completion of the Transaction is conditional on approval from Playtech's shareholders and relevant financial services regulators.

In addition, Playtech is pleased to announce that it has agreed a €200 million unsecured revolving credit facility with Barclays Bank PLC and Royal Bank of Scotland plc, which will, together with existing cash resources, be available to fund the recently announced acquisitions of the Playtech Group and also further growth initiatives.

Highlights

• Acquisition of a complementary business to build upon the TradeFX acquisition
• The Transaction will substantially expand and enhance TradeFX's existing position through the diversification of customers and geographies with limited overlap with TradeFX's business together with the addition of new regulatory licences
• Directly in line with Playtech's strategy to acquire profitable, regulated, highly cash generative businesses with market-leading positions
• Consideration at attractive multiple of approximately 6x adjusted 2014 EBITDA*
•  Expected opportunities for synergies identified as part of integration planning
• Acquisition is classified as a Class 1 transaction due to aggregation with the TradeFX acquisition
• Brickington Trading Limited, Playtech's largest Shareholder, has undertaken to vote in favour of the Transaction in respect of its 33.6 per cent beneficial holding

* adjusted to take into account certain jurisdictions which may be closed or discontinued in their current form

Overview of Ava Trade

• Award-winning, profitable and growing B2C online CFD broker, providing services in more than 160 countries and in over 16 languages
• Established in 2006 and headquartered in Dublin, Ireland
• Licensed and regulated in the EU by the Central Bank of Ireland, in the BVI by the British Virgin Islands' Financial Services Commission, in Japan by the Financial Services Agency and in Australia by the Australian Securities and Investments Commission
•  Average Active Customers for five months to 31 May 2015 of 13,400
• Reported 2014 revenue of $69.9 million, with EBITDA of $24.6 million (pre any adjustments for jurisdictions which may be closed or discontinued in their current form).      

 

Commenting on the Transaction, Mor Weizer, Chief Executive Officer of Playtech, said:

"The acquisition of the Ava Group is another important milestone in Playtech's strategy to expand and enhance its overall technology offering through multiple vertical markets. Since the recent earnings-enhancing acquisition of TradeFX and the creation of our financials division we have sought further opportunities to broaden our reach into this vertical.

The Ava Group is a well recognised and established online CFD broker with multiple regulatory licences and a strong customer base with insignificant geographical overlap with the TradeFX Group. We are very excited about the opportunities for the Group arising from the combination of the Trade FX Group and the Ava Group which we are confident will deliver long term value for Shareholders."

Canaccord Genuity is acting as sole sponsor and financial adviser to the Company in connection with the Transaction.

Shareholders should read this preceding summary in conjunction with the full text of the following announcement, together with the circular which will be published in due course.

 

 

For further information please contact:

 

Playtech PLC (C/O Bell Pottinger)              +44 (0) 20 3772 2496

Mor Weizer, Chief Executive Officer

Ron Hoffman, Chief Financial Officer

Andrew Smith, Head of Investor Relations

 

Canaccord Genuity Limited                       +44 (0) 20 7523 8000

(Sponsor and financial adviser)

Bruce Garrow

Piers Coombs

Mark Whitmore

 

Bell Pottinger                                             +44 (0) 20 3772 2500

David Rydell

Olly Scott

David Bass

James Newman

 

 

PLAYTECH PLC

Proposed acquisition of Ava Trade Ltd.

Introduction

The Company announces today that its subsidiary, TradeFX, has entered into a share acquisition agreement under the terms of which it will acquire the entire issued share capital of Ava Trade, an online B2C CFD broker over which TradeFX had secured an option to purchase prior to the acquisition of TradeFX by the Playtech Group. The Ava Group is licensed and regulated in the Republic of Ireland, the BVI, Japan and Australia.

The consideration payable to the Sellers under the terms of the Transaction is US$105 million, which is subject to a post-Completion working capital calculation on a cash-free/debt-free basis. Completion of the Transaction is conditional on approval from Playtech's shareholders and relevant financial services regulators.

Overview of the Ava Group

The Ava Group is an award-winning, profitable and growing online CFD broker, offering access to approximately 250 underlying instruments, in more than 160 countries and localised in 16 languages. The Ava Group operates a B2C business model and provides its registered customers with access to a range of industry standard platforms such as ActTrader and MetaTrader 4. The Ava Group also offers a mobile app and web trading portal, which allow its customers to trade online without being required to download a platform, in combination with providing its customers access to a comprehensive online trading education suite and economic news portal. The Ava Group is licensed and regulated in the EU by the Central Bank of Ireland, in the BVI by the British Virgin Islands' Financial Services Commission, in Japan by the Financial Services Agency and in Australia by the Australian Securities and Investments Commission.

The Ava Group has designed its product and service offering to cater specifically to its key target market of geographically diverse retail traders, many of whom are novice CFD traders. The Directors believe the Ava Group's ability to offer tailored offerings to meet bespoke client demands and provide access to the Ava Group's award winning, multilingual customer service and highly developed retention abilities are, in part, responsible for driving the Ava Group's CLV. Furthermore, the Ava Group provides comprehensive online tutorials and a demo suite to its customers.

The Ava Group was established in June 2006 and commenced trading in January 2007. It has since grown both organically and through acquisitions and in the last five years has acquired, amongst other things, Art Co., a Japanese based broker in June 2010, Finotec Trading UK Ltd.'s customer accounts outside of the EU in June 2011; and the Australian customer accounts of YouTradeFX in June 2014. Previously utilising the AvaFX brand, and offering solely FX trading, the Ava Group rebranded in April 2013 to reflect its more diverse product offering. Today the majority of products and a large percentage of revenues are derived from non-Forex product offerings.

The EU licensed subsidiary of the Ava Group is incorporated and headquartered in Dublin, Ireland, where certain key functions and personnel are located. Ava Trade is incorporated in the BVI and holds a licence with the British Virgin Islands' Financial Services Commission. Both entities receive support from a subsidiary of the Ava Group based in Israel as do, indirectly, the other trading subsidiaries located and licensed in Australia and Japan, and the Ava Group's representative offices in certain international locations. The Ava Group had on average over 13,400 Active Customers in the five months to 31 May 2015.

The Ava Group reported revenue for the year ended 31 December 2014 of $69.9 million, with approximately 54 per cent. of this total being generated from Ava Trade and 38 per cent. from the EU licensed subsidiary. The Ava Group reported a strong operating profit margin for the period of approximately 35 per cent., with EBITDA of $24.6 million and a pre-tax profit of $24.3 million. As at 31 December 2014, the Ava Group had gross assets of $40.1 million.

The Playtech Group is currently conducting a review of the Ava Group's areas of operation. On the conclusion of this review, immediately following Completion, certain jurisdictions from which the Ava Group has previously accepted customers may be closed or discontinued in their current form. During the four months ended 30 April 2015, the Ava Group has derived approximately 12.8 per cent. of revenue and 18.8 per cent. of operating profit from the relevant jurisdictions which may be affected by this review.

Current trading and prospects

Playtech and TradeFX

Playtech's core gambling business continues to perform strongly with average daily run rate revenue for Q2 2015 up over 25 per cent. on Q2 2014.

From 1 January 2015 to 31 May 2015, TradeFX continued to benefit from the execution of its strategy, including the growth in popularity of the mobile application and the effectiveness of its approach to marketing, generating improved performance in its key business metrics of Active Customers and FTDs.

                                                                                                                               Five months ended 31 May

Net revenue from trading (US$ million)                                                  24.5                    42.2

Active customers - core business CFDs ('000)                                      24.6                    32.0

FTDs - core business CFDs ('000)                                                       13.6                    18.2

Ava Group

From 1 January 2015 to 31 May 2015, the Ava Group continued to experience the positive momentum from 2014, with total revenues of approximately $26.3 million, representing growth of 34 per cent. over the same period in 2014, driven by concentrating on geographically diverse retail traders. Over the same period, average monthly active customers and FTDs declined as the Ava Group executed on its strategy of focusing on customers who will deliver greater longer term value for the group rather than shorter term volumes, resulting in a significant increase in customer lifetime value.

                                                                                                                         Five months ended 31 May

Net revenue (US$ million)                                                             19.6                      26.3

Average monthly active customers ('000)                                       17.4                      13.4

FTDs ('000)                                                                                   6.6                        5.7

Source: Unaudited management accounts of the Ava Group.

Accordingly, the Directors believe the significant growth in revenues during this period supports confidence in the potential contribution which the Ava Group can deliver to the overall success of the Playtech Group.

Background to and reasons for the Transaction

The Transaction is in line with the Board's strategy to acquire market leading businesses in regulated, high growth industries, with similar fundamentals to the Group's existing operations. The Board reviews the most efficient, value enhancing means for deploying its capital on an ongoing basis.

The Transaction builds on Playtech's recent acquisition of TradeFX, a leading online CFD and binary options broker and trading platform provider. The Directors believe the consideration to be an attractive valuation for the business, which will substantially expand and enhance the TradeFX Group's existing offering in a complementary way.

The Transaction will provide additional regulatory licences as well as to those already held, significantly increasing the number of geographies to which the Group offers its B2C services, with limited overlap between the customer locations of the TradeFX Group and those of the Ava Group.

Playtech is in the process of putting in place certain arrangements with the senior management team of the Ava Group, who have been instrumental in building the business and will remain with it following Completion. The founders of Ava's business have had a reduced involvement in the management of the business over recent years and accordingly following Completion will cease to be involved.

As announced on 1 June 2015, Playtech and Plus500 have reached agreement regarding the terms of a recommended cash acquisition by the Group of Plus500 which values the entire issued ordinary share capital of Plus500 at £459.6 million. This acquisition remains conditional on, inter alia, approval by both Playtech's Shareholders and the shareholders of Plus500. Should the acquisition of Plus500 proceed, the Directors believe that it will be complimentary to both TradeFX and AvaTrade, and will enable the combined offering to maximise the market opportunity and product offering by utilising the strengths of all three businesses. A circular relating to the acquisition of Plus500 will be sent to the Shareholders in due course.

Benefits of the Transaction

The Directors believe that the Transaction will be accretive to the Group's earnings and further strengthen its competitive position within the CFD industry, building upon the recent acquisition of TradeFX.

The Transaction will give the Group access to new international markets not currently serviced by the TradeFX Group and there is no significant geographical overlap between the two CFD businesses. The Group will gain new regulatory licences as part of the Transaction.

In addition, the Transaction will enhance Playtech's existing product and service offering, providing Playtech's existing registered user base with access to a more diverse and innovative selection of financial instruments and provide access to the Ava Group's comprehensive trading education and research portal HushTrade.

The Ava Group will be acquired at a multiple of approximately 6x 2014 EBITDA (as adjusted to take into account certain jurisdictions which may be closed or discontinued in their current form following completion of the review being undertaken by the Playtech Group referred to above). The Directors believe this represents a significant value enhancing opportunity for the Group to acquire a leading brand in a growing industry. Furthermore, the Directors expect that the Transaction will deliver operational efficiencies and cost savings, once the Ava Group's systems have been effectively integrated into the Group's existing CFD offering. The Directors will also consider taking steps to manage tax efficiency of the Ava Group's operations.

Terms of the Transaction

TradeFX has entered into a conditional share acquisition agreement under the terms of which it has agreed to acquire from the Sellers the entire issued share capital of Ava Trade. An amount of US$105 million in cash is payable by TradeFX, on a cash-free/debt-free basis, which is subject to a post-Completion working capital calculation. Of this amount, US$5 million has been paid as a non-refundable deposit and US$10 million will be retained in escrow to serve as security for certain claims by TradeFX under the agreement.

Completion of the Transaction is subject, inter alia, to approval by Shareholders of the Resolution at the General Meeting and satisfaction of certain regulatory and other customary conditions.

Completion of the Transaction will occur on the fourth Business Day following the end of the calendar month in which the relevant conditions have been fulfilled or waived in writing (other than those conditions which, by their terms, are to occur on Completion or expire) or such later date, time and place as TradeFX and the Principal Sellers may agree and provided always that TradeFX or the Principal Sellers may, in certain circumstances, terminate the Share Acquisition Agreement on 5 November 2015 or on 1 November 2015 if regulatory approvals have not been received by such time. The Company currently expects the Transaction to be completed by 30 September 2015 subject to satisfaction of those conditions referred to above.

Funding of Transaction

The acquisition of Ava Trade will be funded from the Company's existing cash resources, which include the funds raised from its recent equity fundraising raising gross proceeds of £227 million, and available debt facilities including a €200 million unsecured revolving credit facility which was recently entered into with Barclays Bank PLC and Royal Bank of Scotland plc.

General Meeting

The Listing Rules require that transactions entered into within a 12 month period and which lead to substantial involvement in a business activity which did not previously form a significant part of a company's principal activities to be aggregated. The Group completed the acquisition of TradeFX on 7 May 2015. Accordingly, the aggregation of the TradeFX acquisition with the proposed acquisition of Ava Trade causes the Transaction to be classified as a Class 1 transaction for the purposes of the Listing Rules and therefore requires the approval of the Resolution by Shareholders at the General Meeting. A circular will be sent to Shareholders in due course convening the General Meeting at which the Resolution will be proposed.

For the avoidance of doubt, the approval of Shareholders relating to the proposed acquisition of Plus500 Ltd. that was announced by the Company on 1 June 2015 is not being sought at the General Meeting and a separate circular will be posted to Shareholders in due course in relation to that transaction.

Recommendation

The Directors consider the Transaction to be in the best interests of Shareholders as a whole and unanimously recommend that Shareholders vote in favour of the Resolution at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings, which in aggregate equal 68,500 Ordinary Shares, representing approximately 0.02 per cent. of the issued share capital of the Company as at 30 June 2015, being the latest practicable date prior to the issue of this announcement.

Brickington Trading Limited, being the largest Playtech Shareholder, has undertaken to vote in favour of the Transaction in respect of its own beneficial holding of 108,408,441 Ordinary Shares, representing approximately 33.6 per cent. of the issued share capital of the Company.

IMPORTANT NOTICE

This announcement has been issued and is the sole responsibility of Playtech PLC and has been prepared for the purposes of complying with the laws of the Isle of Man and the Listing Rules and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any other jurisdiction.

A copy of the circular, when published, will be available from the registered office of Playtech and on Playtech's website at www.playtech.com.

Canaccord Genuity, which is authorised and regulated in the United Kingdom by the FCA, is acting exclusively for the Company and no-one else in connection with the Transaction and will not be responsible to any person other than the Company for providing the protections afforded to its clients or for providing advice in relation to the contents of this announcement or the Transaction.

Apart from the responsibilities and liabilities, if any, that may be imposed on Canaccord Genuity under FSMA or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where the exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, Canaccord Genuity accept no responsibility whatsoever and make no representation or warranty, express or implied, as to the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Ordinary Shares or the Transaction. Canaccord Genuity accordingly disclaim, to the fullest extent permitted by law, all and any liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this announcement or any such statement.

This announcement contains forward-looking statements which are subject to assumptions, risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by those forward-looking statements. Each forward-looking statement is correct only as of the date of the particular statement. The Company does not undertake any obligation publicly to update or revise any forward-looking statement as a result of new information, future events or other information, although such forward-looking statements will be publicly updated if required by the Listing Rules, the Prospectus Rules, the Disclosure and Transparency Rules, the rules of London Stock Exchange plc or by law.

 

 

DEFINITIONS

 

The following definitions apply throughout this announcement, unless stated otherwise:

 

Ava Trade	Ava Trade Ltd.
Ava Group	Ava Trade and its subsidiaries from time to time
Board	the board of the Company comprising the Directors
BVI	British Virgin Islands
Canaccord Genuity	Canaccord Genuity Limited of 88 Wood Street, London EC2V 7QR
Completion	completion of the Transaction in accordance with the Share Acquisition Agreement
Company or Playtech	Playtech PLC
Directors	the directors of the Company
DTRs or Disclosure and Transparency Rules	the Disclosure and Transparency Rules of the FCA made in accordance with section 73A of FSMA
EU	European Union
Euro or €	the official currency of certain of the member states of the European Union
FCA	the Financial Conduct Authority
FSMA	the Financial Services and Markets Act 2000 (as amended)
General Meeting	the general meeting of the Company  to be convened in connection with the Transaction
Group or Playtech Group	the Company and its subsidiaries from time to time
Listing Rules	the Listing Rules of the FCA made in accordance with section 73A of FSMA
Minority Sellers	those persons (other than the Principal Sellers) selling shares in the issued share capital and Ava Trade on Completion
Ordinary Shares	ordinary shares of no par value in the capital of the Company
Plus500	Plus500 Ltd.
Principal Sellers	Moran Shekel Nosatzki and Emanuel Kronitz
Prospectus Rules	the rules made for the purposes of Part VI of FSMA in relation to the offer of securities to the public and admission of securities to trading on regulated markets
Resolution	the ordinary resolution to approve the Transaction
Sellers	the Principal Sellers and the Minority Sellers
Shareholders	the holders of Ordinary Shares
Share Acquisition Agreement	the share acquisition agreement between TradeFX, Ava Trade and each of the Sellers dated 1 July 2015 in connection with the Transaction
subsidiary or subsidiaries	as defined in section 1159 of the UK Companies Act 2006 (as amended)
TradeFX	TradeFX Limited
TradeFX Group	TradeFX and its subsidiaries from time to time
Transaction	the proposed acquisition by TradeFX of the entire issued share capital of Ava Trade

GLOSSARY

Active Customer	a customer who makes at least one trade using real money during a rolling 12 month period
Android	a mobile operating system designed primarily for touchscreen mobile devices such as smartphones and tablet computers; developed and distributed by Google
app	an application for use on an operating system such as iOS or Android
B2C	business to consumer
CFD	a contract for difference
CLV	customer lifetime value
EBITDA	earnings before interest, tax, depreciation and amortisation
FTD	a first time depositor, being a customer who has deposited real money into their account with the Ava Group for the first time
Forex / FX	foreign exchange
iOS	a mobile operating system designed primarily for touchscreen mobile devices such as smartphones and tablet computers; developed and distributed by Apple Inc.