Once Rational Group is paid off, will Amaya be looking for acquisitions?

News on 25 Mar 2017

This year should see the final payment in online gambling group Amaya’s 2014 $4.9 billion purchase of The Rational Group, and the Bloomberg business news service has interviewed CEO Rafi Ashkenazi (42) on plans beyond that.

Ashkenazi, who replaced the trouble-prone former CEO David Baazov when the latter stepped down a year ago, has reportedly restored investor confidence with his ‘pragmatic’ management style, with the share price seemingly reflecting that, rising 31 percent since Baazov’s departure.

Certainly he is more all-round professional executive than a wheeler-dealer in the Baazov style; he comes from an engineering background but has plenty of executive management experience with major online gambling companies like Playtech and Rational Group prior to the Amaya takeover.

The indications are that acquisitions will feature high on Ashenazi’s list.

“We are very open to acquisitions generally,” Amaya’s chief exec told Bloomberg, revealing that in preparation for new initiatives he is looking for a suitably experienced M&A manager, especially one with sports betting expertise.

A new chief financial officer is also on his list of priorities, as is a corporate identity change for Amaya.

Ashkenazi’s quest for acquisitions may be rooted in a need to further diversify beyond online poker, Bloomberg speculates, noting that Amaya has already placed increasing emphasis on sports and casino activity in a market where online poker has suffered declines due to US legality and other problems.

The publication notes that the vertical peaked in 2010 at $3.3 billion and now accounts for 6.2 percent of all global interactive gambling, down from 17 percent in 2006.

Online poker contributed 70 percent of Amaya’s overall revenue in Q4-2016 – down 8 percent year-on-year. In that quarter the contribution to group revenue from casino and sports betting rose from 17 percent the previous year to 26 percent.

Expressing a less optimistic view on an Amaya acquisitions hunt was Maher Yaghi, an analyst at Desjardins Capital Markets, who wrote this week that it may be early for such a drive, pointing out that Amaya’s long-term outstanding debt at the end of 2016 was $2.5 billion, and its net debt to earnings ratio stood at 4.4, meaning “any sizable acquisition would likely require equity.’’

Last year Amaya hit the headlines when it discussed merger possibilities with William Hill plc (see previous reports). The talks were brief and ended when a major William Hill shareholder objected, but Bloomberg reports that Ashkenazi has not abandoned the concept entirely, saying:

“You can never say that anything is dead. Sometimes companies need time to reflect before they reengage in discussions.” He added that William Hill is a great company that could be a very good merger partner.

Listing his hopes and challenges, Ashkenazi cites US legalisation moves in several states despite hostile enforcement agencies and some politicians, the uncertainties of a new administration and Attorney General, the active opposition of Sheldon Adelson and his billions, and an $870 million fine which the company is fighting in Kentucky.

On the regulatory front the increasingly hostile government attitude to online gambling in Australia has prompted Amaya to consider an exit, addressing this setback by seeking new markets and verticals, and continuing to pursue a strategy that favours recreational players over professional “sharks”.

Despite it all, Ashkenazi said he feels the worst may be over, with the group moving on to better times

“The changes that we went through in 2016 were quite dramatic,” Ashkenazi said. “Now I can focus myself on the future of the company.

“2017 will also be to a large extent the continuing transitional year for us, but probably from the second half of this year, I can be much more focused on finding ways to grow the company, not necessarily organically.”

Read the full interview here: https://www.bloomberg.com/news/articles/2017-03-24/pokerstars-owner-amaya-eyes-acquisitions-after-difficult-period.

Related and similar