Exclusive: Playtech negotiating TradeTech sale at $200-250 million value
FNG Exclusive… FNG has learned that online gaming and financial services company Playtech (LON:PTEC) is engaged in a series of negotiations with regards to selling its financial unit TradeTech. The move comes as Playtech is looking to focus on its core gaming technology and services business moving forward.
Playtech has apparently engaged investment bank UBS to help coordinate an auction of TradeTech. The initial price range being discussed for the sale is $200-250 million. Playtech, which trades on the London Stock Exchange, has an overall market cap of £1.1 billion (USD $1.5 billion).
TradeTech was cobbled together as the Financials unit of Playtech about three years ago, combining both institutional (B2B) and retail (B2C) elements. In 2016 and 2017 Playtech acquired two B2B companies serving (primarily) the Retail Forex sector, CFH Group and Alpha Capital Markets. Playtech paid $120 million for CFH Group, a Denmark based company founded by ex Saxo Bank executives Lars Holst and Christian Frahm which provided liquidity services to FX brokers. The company then bought London based FX and CFDs market maker Alpha Capital Markets, formed just two years prior by former Gain Capital institutional FX personnel, for $150 million.
The two B2B companies CFH and Alpha were then combined (at least organizationally) with Playtech’s Retail FX brokerage arm Markets.com, based in Cyprus, which Playtech had acquired in 2015 directly from the company’s former controlling shareholder Teddy Sagi. That transfer was made at an implied valuation of more than $200 million for Markets.com.
So, if the sale of TradeTech does go ahead at the talked about range, it will be at a large historical loss for Playtech, which as noted above paid about $500 million combined for the three companies. However the timing does look ripe for a sale of TradeTech, which (alongside many companies in the FX sector) has made a nice comeback in 2020, thanks to heightened market volatility and trading activity levels. We had earlier reported that TradeTech generated over €45 million in EBITDA during the first four months of the year (Jan 1-Apr 30), with most of that in Q1. TradeTech generated EBITDA of €7.8 million on Revenue of €67.9 million for all of 2019.
Reports being circulated in Israel indicate that at least one buyer group has formed and is already involved in negotiations for TradeTech. The group comprises Israel based late stage investor Fortissimo, which recently raised a fifth fund totaling $650 million, Israeli entrepreneur Zvika Barenboim, backed by a number of Israeli pension funds. Fortissimo has been an investor in Sodastream which was acquired by Pepsi for $3.2 billion.
The timing of the planned sale of TradeTech is not too surprising.
First, as we note above, TradeTech is doing a lot better this year than last, as is the FX sector as a whole.
Second, as has been exclusively covered by FNG, a number of the key executives at the B2B companies acquired by Playtech – who have been effectively running the unit since the acquisitions – have left recently. CFH co-founder Christian Frahm resigned his duties with the company earlier this year, and is focusing on new ventures. Søren Bjerregaard, who headed sales for CFH the past decade, just left the company to join CFH’s other co-founder Lars Holst at his cryptocurrency exchange company GCEX. (Mr. Holst left in 2018). And Alpha Capital Markets’ co-founder and CEO Muhammad Rasoul left the company earlier this summer.
As these executives have left more and more of the burden of running TradeTech, still to some degree consisting of disparate brands, has fallen to TradeTech CEO Ron Hoffman. Mr. Hoffman was CFO of Playtech before moving over to help put together the TradeTech Group financials unit, as we describe above.
Interestingly, Playtech itself is the subject of M&A discussions. FNG recently reported that activist shareholder Jason Ader, who holds a 5% interest in Playtech and appears somewhat frustrated with its low valuation (he’s down about 40% on his investment made in 2018), is pushing for DraftKings to make an offer for the company.