As they say, you cannot keep a good man down for long, or at least one that is eager to expand his gambling empire and has £800 million burning a hole in his pocket. News of our intrepid Israeli billionaire, Teddy Sagi, and his flagship firm, Playtech, is flowing across the Internet and tabloid press, claiming that he and his merry band of gambling cohorts are hungry for acquisitions with plenty of cash to spread around in the process.
This news story began in May of last year when the Plus500 Fiasco consumed the financial headlines in London and across the trading world. Teddy Sagi, seizing upon a major bargain that he could not refuse, swooped in with an open checkbook and offered a sizable takeout bid of £459.6 million, which was accepted without contest. While salivating from this easy kill, he also made a move to absorb the Ava Trade franchise to further expand his TradeFX (Markets.com) exploits, acquired before any of these firework displays had lit up the London financial scene.
All was going swimmingly for Sagi by September. Nearly every hurdle had been crossed, and his mug had recently graced the cover of the Israeli version of Forbes Magazine, touting Teddy as the sixth richest man in Israel with a projected net worth of $17 billion. This “projection”, however, presumed that his two acquisitions would go through as planned, but, unfortunately, regulators in both Ireland and the UK blocked his dealings on both fronts. There was no joy in SagiLand. Mighty Teddy had struck out.
Teddy may have lost a few notches on the Forbe’s list back home, but he was surely undaunted. You do not get to be a billionaire by backing away from the fray. You re-group, re-think your strategy going forward, and then go back on the attack once more with renewed vigor and, most of all, persistence. Of course, it also helps to have a mountain of cash to bankroll your strategic thrusts in the market. Headlines were soon recognizing this fact and claiming that Teddy was on the prowl, looking for prey.
What happened to the rumors that Playtech was attempting to buy OpenBet?
When last we checked in on Teddy Sagi’s excursions in the acquisition trade, the rumor mill was overflowing that his eyes were squarely focused on OpenBet, a UK-based gambling software company and reputed rival in providing software platforms for online sports betting, casino games, and lotteries. In previous attempts, Sagi had acted like a predator in the jungle, singling out a wounded or crippled beast for his next meal. How else to ensure a good bargain, if not to choose a foe with one knee already bent in obvious submission? Plus500 had been crippled by the regulators for ignoring their documentation demands, and Ava Trade was in need of operating improvements to better its bottom line. Both targets were open for the slightest of takeover bids.
OpenBet is entirely another story. As we recently reported, “Vitruvian Partners, the venture capital firm that owns OpenBet, has been peddling its investment to potential buyers for months with a price tag of £300 million, a figure that would garner a 50% return for its investors after five years of ownership. With a market cap of £2.5 billion and free cash exceeding £1 billion, Playtech would be a likely candidate and suitor for this gaming related company.”
Unfortunately for Teddy, venture capital firms, as a rule, expect a healthy return on their investments. Vitruvian paid £208 million for OpenBet, when it acquired the firm in 2011, and the price tag it is willing to consider has been pegged at £300 million. Vitruvian has also hired Morgan Stanley to shop its property around the industry, suggesting that there is one more “commission” mouth to feed in this transaction. Industry sources hint that Sagi and his team have only offered £250 million, barely a 5% annual return when you do the math and hardly enough to fund a handsome commission to the broker of the deal. No one is talking at the moment, but the rumor mill has not gone quiet either.
Is there an active market for consolidations in the gambling arena? One reporter has noted that there had been a flurry of deals of late “in the UK’s recent gambling merger mania, which has seen Betfair join up with Paddy Power, Coral get married to Ladbrokes and GVC Holdings absorb Bwin.party.” One rather large takeover bid of £744 million for 888 Holdings, however, was resoundingly rejected by 888 stakeholders.
A few deals have also gone sour, but the growing concern among many gambling operators is that too many firms are becoming far too dependent on Playtech for back office support, and, according to a few in the know, Playtech “has developed a sharp-elbowed reputation among some of its clients.” For this and several other reasons, the rumor now is that, “Bookmakers William Hill are reportedly backing a bid by NYX Gaming Group to acquire betting technology provider OpenBet.”
Are there other firms in the Playtech crosshairs at the moment?
We suspect that Sagi is not too flustered if OpenBet chooses to go with another suitor. OpenBet is a UK-based enterprise and would require FCA backing for any merger to be consummated. Judging from previous considerations, it is doubtful whether the FCA would suddenly have had a change of mind and reversed its previous positioning on the Plus500 proposed transaction. When his previous deals went awry, we reported that, “The word on the street is that his criminal background is what scuttled the deal and that the FCA demanded that he sell his controlling interest in Playtech before approval could be given, a certain deal breaker in Sagi’s eyes.” Further consolidation in such a lucrative industry was also seen to have negative implications that the FCA could not ignore.
So why not look outside the UK? Playtech’s executive management team has not been shy in informing the press that the firm has a number of “strategic acquisitions” under consideration at present. They are holding “live discussions on a number of potential acquisitions”, each designed to expand the breadth of its internal gaming division. Word has it that Teddy and Playtech are being approached to participate in a takeover bid of Montreal-based Amaya Inc., the world’s largest online poker company, sporting such brands as PokerStars, Full Tilt, BetStars, and StarDraft.
A takeover of Amaya may be one more drama filled nightmare for Sagi and crew.
Amaya is no small enterprise. It is a highly lucrative affair, traded on both Toronto and London stock exchanges, with significant outstanding debt liabilities of $2.6 billion. The current CEO and chairman, David Baazov, along with a handful of other senior executives, is mounting a takeover bid to take Amaya private. Baazov announced his intentions back in early February, and sources near the discussions mentioned a potential bid of C$2.8 billion ($2.1 billion), or C$21 a share.
With a potential deal of this magnitude, Baazov and his buyout-minded crew need a partner with substantial cash to invest. Who might this Superman be? You guessed it – Teddy Sagi incarnate, red cape and all, but at this stage, it is still just a rumor. In this case, Teddy would have to be approached and accept a minor role in the deal, but where there is big money to be made, why not?
The “why nots” may not be what Sagi wants to hear, but employee buyouts are always complex, and with a firm as large as Amaya, there are many extenuating circumstances. First we have the C$21 per share bid, itself. One analyst has already noted, “a C$21 a share bid represents a multiple of 9 times forward earnings while Amaya’s peers trade at nearly 20 times. We believe that a bid remains likely. We note that in our view a C$21 bid may not receive enough support so a higher bid may be required.”
Will the Baazov consortium offer more? There is already confusion on what the actual offer might be, but a month has passed, and no offer has been announced. One report noted a possible US$3.13 billion figure, but it did not source the bid back to Baazov. In the meantime, Amaya’s board is getting its ducks in a row by appointing an advisor to oversee the process, asking for other potential bidders to make themselves known, and by retaining an independent valuation adviser. Confidentiality clampdowns are also in place.
Debt holders will also have a say in the proceedings, and there are litigation risk issues that extend to the United States market. The gaming establishment in the U.S. has lobbied hard to block online gambling efforts. SEC officials have refused to accept CFDs as official securities, worthy of trading, the reason many brokers for these products do not do business in the U.S. And then we have regulators, as well, that might not take too kindly to Teddy Sagi’s being jailed in the 1990s for stock fraud.
But rumors persist that Sagi will be part of the deal. Recent news of an ongoing restructuring of the TradeFX division has led people to speculate that Teddy is freeing up cash by cost cutting, but this type of process is common after a merger, especially when other pieces did not fall into place. We may have to wait this one out for a while.
Teddy Sagi and his attempts to expand his burgeoning gambling empire continue. The odds seem to be stacked against him, but never underestimate the determination of an Israeli businessman, especially one that has cash to burn and millions of it. Mr. Sagi may still be getting his feet wet in a way, according to gambling industry pundits. It seems that he and Amaya executives clashed in 2014, when both sides went head-to-head and lost a bidding war for Bwin.party when it was on the chopping block. Two years later, and they all look like best buddies.
If this deal fails, do not be concerned. There will be others. Playtech is eager, and, in cases like these, agents will be throwing new deals at Teddy, right and left. Playtech recently announced that its revenues grew 38% in 2015 and that net profits came in at €205.9 million. With profit margins of nearly 33%, Playtech will continue to generate a ton of cash, just waiting to be invested in the best bargain that comes along at the right time. Teddy Sagi does understand that timing is everything, the real reason he is always smiling in his pristine photo ops.