Betfair, a UK-based company coining money in a business the US is too morally schizophrenic to allow, is going public.Betfair facilitates sports betting and other forms of person-to-person wagering. It is a ~$500mm+ million annual business with ~$100mm of earnings before interest and taxes. Revenue in the July quarter grew 22% year over year.
The company’s existing shareholders will sell 10% or more of the company’s outstanding stock on the London Stock Exchange. Morgan Stanley and Goldman are leading the offering.
Based on the company’s financials, it will likely be valued at $2-$4 billion once it is public.
Here’s some info from the company:
Betfair has today announced its intention to seek a listing on the main market of the London Stock Exchange.
The IPO is expected to comprise the sale of a minimum of 10% of existing shares to institutional investors in the UK and elsewhere. Betfair is not raising any new money and is not offering any primary shares for sale.
Betfair has also published its results for the year ended 30 April 2010, along with a trading update for the first quarter of the current year. This shows that in the three months to end-July, Betfair’s core business increased its revenues by 22% to £86.3m with sports betting revenues rising by 24%. Betfair has £150 million of cash and no debt on its balance sheet.
· Betfair is the world’s largest international online sports betting provider and the world’s largest betting community
· Launched in 2000, Betfair pioneered online person-to-person sports betting by developing the Betting Exchange – (to view a short film explaining how it works click here: http://corporate.betfair.com/media/video-gallery.aspx)
· Based in the UK, Betfair employs more than 2,000 people globally
· Last year Betfair processed on average more than 5million transactions per day – more than all of Europe’s stock exchanges combined
21 September 2010
Betfair Group Limited(1)
Announcement of intention to list on the London Stock Exchange
Betfair today announces its intention to apply for admission to the premium listing segment of the Official List of the UKLA and to trading on the main market of the London Stock Exchange (“Admission”) and to proceed with an initial public offering of Shares (“the Offer”). Betfair does not intend to issue any new Shares as part of the Offer.
Betfair has a track record of sustained revenue growth and profitability and has multiple opportunities to secure future growth based on its unique, disruptive exchange platform technology and leadership in a large and growing online sports betting market.
• Betfair is the world’s largest international online sports betting provider and the world’s biggest betting community, offering a broad range of sports betting, poker and games products to more than 3 million registered customers.
• Launched in 2000, Betfair pioneered online person-to-person sports betting by developing a market place (the “Betting Exchange”) which allows customers to bet at odds sought by themselves or offered by other customers and thereby eliminates the need for a traditional bookmaker.
• The Betting Exchange has fundamentally changed the sports betting market by offering customers better pricing and more choice and flexibility. This has resulted in Betfair’s customers showing greater levels of loyalty than its competitors with significantly higher customer satisfaction rates.
• The Betting Exchange is based on proprietary technology which is capable of simultaneously matching large numbers of customers and transactions and provides a fully integrated real time clearing and settlement system. In the year ended 30 April 2010, Betfair processed on average more than 5 million transactions per day on its Betting Exchange(2)—more than all European stock exchanges combined.
• Betfair today is separately announcing its audited results for the year ended 30 April 2010, which continue the Group’s record of revenue growth and profitability. Betfair revenue grew by 13 per cent. to £340.9 million with Adjusted EBITDA(3) of £53.5 million. This comprised Core Betfair revenue of £306.0 million and Adjusted EBITDA of £62.2 million and Other Investment revenue of £34.9 million and an Adjusted EBITDA loss of £8.7 million.
• Betfair currently has a diverse shareholder base, including a group of 14 major investors holding approximately 75 per cent. of the Company’s fully diluted share capital. Based on indications received to date, Betfair expects the Offer to comprise the sale by over half of the group of major shareholders, board members and management team of Shares representing at least 10 per cent. of Betfair’s fully diluted share capital as at Admission. In addition to the group of major shareholders, Betfair has approximately 600 other shareholders, and approximately 25 per cent. of the Company’s fully diluted share capital is held by shareholders who have holdings of less than 1 per cent. each. These shareholders will also be given the opportunity to sell Shares in the Offer. No indications have yet been received from these shareholders with regard to their intention or otherwise to sell Shares in the Offer. Betfair does not intend to issue new Shares as part of the Offer. The final Offer size will be confirmed prior to Admission.
Summary information on Betfair
At the heart of Betfair is the pioneering Betting Exchange, where customers come together in order to bet at odds sought by themselves or offered by other customers, thereby eliminating the need for a traditional bookmaker. Betfair also offers a range of other sports betting products, casino games and poker. These businesses together comprise Betfair’s “Core Betfair” segment.
Betfair owns a 73.5 per cent. holding in LMAX, which has developed an exchange platform for online retail financial trading that has evolved from Betfair’s exchange technology. LMAX was originally established by Betfair in 2007 and has invested significant resources since then in developing its proprietary exchange, with a launch expected to take place in the final calendar quarter of 2010. Betfair also owns Betfair US, which comprises TVG (a licensed US horse racing wagering and television broadcasting business) and a development office in San Francisco. LMAX and Betfair US together comprise Betfair’s “Other Investments” segment.
In addition, Betfair has a 50 per cent. shareholding in Betfair Australia, a joint venture which operates a licensed betting exchange business in Australia.
Betfair has twice been named the UK’s “Company of the Year” by the Confederation of British Industry and has won two Queen’s Awards for Enterprise, being recognised for Innovation in 2003 and most recently for International Trade in 2008.
As at 31 July 2010, the Betfair Group employed 2,003 people, with another 143 employed by Betfair Australia.
The Betfair Group owns licensed operations in the UK, Malta, Italy and the United States and (through Betfair Australia) in Australia.
Further information on the Betfair Group is available at http://corporate.betfair.com.
Summary Betfair results for year ended 30 April 2010
Betfair separately announced today its audited results for the year ended 30 April 2010.
In a year in which Betfair undertook significant investment in its exchange platform and football brand marketing in Core Betfair, as well as further investment in LMAX and Betfair US, the results continue the Group’s record of revenue growth and profitability. Group revenue increased by 13 per cent. to £340.9 million and Adjusted EBITDA of £53.5 million, comprising Core Betfair revenue of £306.0 million and Adjusted EBITDA of £62.2 million and Other Investments revenue of £34.9 million and an Adjusted EBITDA loss of £8.7 million.
As at 30 April 2010, Betfair had £150.9 million of cash and no debt.
Commenting on today’s announcement, David Yu, Chief Executive Officer of Betfair, said:
“Betfair’s unique and highly sophisticated exchange platform technology is at the very heart of the Company’s success in establishing itself as the world’s largest international online sports betting provider. For 10 years, Betfair has delivered sustained revenue growth and continued profitability, and this success, along with our debt-free balance sheet, underpins our confidence to continue investing in the many opportunities we see before us for the long-term success of the business”.
Commenting on today’s announcement, Edward Wray, Chairman of Betfair, said:
“Today is an important landmark in Betfair’s story, which has been characterised by extraordinary innovation, success, growth and profitability since its launch 10 years ago. Becoming a publicly listed company will provide Betfair with the heightened profile and enhanced transparency that will help us cement our long-term relationships with customers, regulators and business partners around the world.”
Key investment attractions of Betfair
Betfair benefits from a number of key strengths that differentiate it from its competitors and which should enable the Group to take advantage of current and future growth opportunities:
• Unique, disruptive exchange platform technology— The Betting Exchange has fundamentally transformed the sports betting market. By leveraging the internet to match customers’ bets through its highly sophisticated online exchange platform, Betfair has become a true internet leader. This model has enabled Betfair, within 10 years, to overtake established industry participants and become the world’s largest international online sports betting provider and the world’s biggest betting community. The Betting Exchange has also eliminated both the financial risk borne by a traditional bookmaker and the resulting adversarial relationship where a bookmaker can only profit if its customers lose. By contrast, Betfair earns a commission on the Betting Exchange regardless of the outcome of an event. The Betting Exchange has, in addition, consistently offered significantly better prices to customers than those offered by traditional bookmakers and has enabled product innovation, such as in-play betting. Since 2000, Betfair has committed 4.6 million man hours and invested more than £300 million in its proprietary technology platform.
• Leadership in a large and growing global market— Betfair is the largest international online sports betting provider in an online betting and gaming market that is forecast by H2 Gambling Capital to grow to $32.6 billion at a compound average growth rate of 11 per cent.(4) between 2008 and 2012. Sports betting was the largest segment of this market in 2009 with a 43 per cent. market share.
• Transformational impact of the Betting Exchange model on customers—The Betting Exchange not only provides customers with better value, but also more choice and flexibility than competing products. Betfair offers customers the ability to bet at odds sought by themselves or offered by other customers, to bet both in favour of (“back”) or against (“lay”) a particular outcome and to bet in-play with dynamic odds changing during the course of a sporting event. Because of its risk-free exchange model, Betfair is able to attract, retain and derive commission revenue from high value customers who are consistent winners and are, therefore, unattractive customers for traditional bookmakers. In addition, the Betting Exchange model facilitates trading and arbitraging strategies, enabling Betfair to attract customers who may not previously have been able to employ trading strategies in the sports betting market.
• Sustainable competitive advantages—Betfair benefits from having a first mover advantage in sports betting exchanges: as the Betfair customer base and community grows, liquidity in Betfair’s markets increases, offering more choice and improved prices, which in turn attracts more customers, leading to higher levels of liquidity and improved prices. This “network effect” makes Betfair’s business model highly defensible and is enhanced by the unique ecosystem developed through Betfair’s application programming interface, which allows a range of businesses and individuals to interact with, and develop applications linked to, its exchange platform technology. In addition, over the past 10 years, Betfair has accumulated operational expertise and financial resources that reinforce its leadership position and provide sustainable advantages in its technology platform and processes.
• Growing and cash generative business model— Betfair has a loyal and stable active customer base which generates both growing revenues and significant cash flow. As at 30 April 2010, Betfair had generated £355 million of operating cash flow since its launch in 2000, had approximately £151 million of net cash reserves and no debt. In addition, as at 30 April 2010, Betfair held £284 million of customer deposits.
• Outstanding management team with long-term outlook—Betfair has a clear philosophy and culture with established principles of integrity, driven by its outstanding, experienced and passionate management team. This approach is supported by an outlook which encourages investment with the objective of securing long-term growth, and a measured and prudent regulatory policy which has enabled the development of long-term relationships with regulators and business partners.
Strong growth prospects underpinned by multiple opportunities
The Directors believe that Betfair has multiple opportunities to secure future growth in both the short and the long-term. These opportunities include:
• Strong sports-led growth—Based on Betfair’s established position and the competitive advantages provided by the Betting Exchange, Betfair will seek to extend its leadership in sports betting through an increased focus on the high growth football market and the creation of targeted user-friendly interfaces.
• Cross‑selling and portfolio expansion—Betfair will continue to introduce innovative new products that it believes will appeal to its loyal customer base, with a focus on maximising customer lifetime value.
• Leveraging new channels—Betfair is well positioned to take advantage of the proliferation and convergence of new product channels through ongoing initiatives in mobile, social media platforms, interactive television and the development of its application programming interface.
• Geographic expansion—In addition to growth in new customer segments, Betfair will continue to pursue growth internationally, where its market penetration is currently lower than in the United Kingdom. This growth will be pursued in line with Betfair’s measured and prudent approach to regulatory compliance and based on a commercial assessment of the cost and resource implications of entering new markets. While Europe and Australia provide potential for growth in the foreseeable future, in the longer term there may be development opportunities in some of the largest gaming markets in the world which are currently highly restricted, such as the United States, India and China.
• Exploiting new markets/new verticals—Betfair’s technology platform provides an opportunity for Betfair to move into new markets or verticals in which its exchange technology offers a potential advantage. For instance, LMAX (a subsidiary of Betfair) has developed an exchange platform for online retail financial trading that has evolved from Betfair’s exchange platform technology, and is preparing for launch in the final calendar quarter of 2010.
Consistent with its expansion strategy to date, Betfair will also continue to consider the full range of opportunities for acquisition and strategic investment, as well as the organic growth opportunities set out above. Each of these options will continue to be considered on its own merits as a means to help Betfair exploit growth opportunities as the fragmented online betting and gaming market consolidates and develops.
Reasons for Admission
The Directors believe that Admission:
• will assist Betfair in the development of its international operations through the enhanced transparency and reputational benefits of being a publicly listed company and will therefore enable Betfair to grow more quickly than it could as an unlisted company;
• will provide Betfair with the flexibility to react to a developing and consolidating online betting and gaming industry;
• will assist in the incentivisation and retention of key management and employees; and
• will provide ongoing flexibility and liquidity for existing shareholders.
Details of the Offer
Betfair currently has a diverse shareholder base including a group of 14 major investors holding approximately 75 per cent. of the Company’s fully diluted share capital. Based on indications received to date, Betfair expects the Offer to comprise the sale by over half of the group of major shareholders, board members and management team of Shares representing at least 10 per cent. of Betfair’s fully diluted share capital as at Admission. In addition to the group of major shareholders, Betfair has approximately 600 other shareholders, and approximately 25 per cent. of the Company’s fully diluted share capital is held by shareholders who have holdings of less than 1 per cent. each. These shareholders will also be given the opportunity to sell Shares in the Offer. No indications have yet been received from these shareholders with regard to their intention or otherwise to sell Shares in the Offer. Betfair does not intend to issue new Shares as part of the Offer. The final Offer size will be confirmed prior to Admission.
In addition, it is intended that further over-allotment Shares will be made available by selling shareholders pursuant to an over-allotment option to cover short positions arising from over-allotments made (if any) in connection with the Offer and any sales made during the stabilisation period. All Shares will be purchased at the Offer price.
Edward Wray and Andrew Black have each indicated that they intend to sell approximately 10 per cent. of their holdings in the Company in the Offer including over-allotment Shares.
Each member of the group of major shareholders, and each member of Betfair’s board of directors and senior management team, has been asked to enter lock‑up arrangements on any shareholding retained after the Offer which will prevent them from selling further Shares for a minimum of 180 days following Admission (365 days in the case of board members and senior management). Based on the indications received to date and the expected size of Offer, Shares representing more than 60 per cent. of Betfair’s fully diluted share capital as at Admission would be subject to lock-up agreements.
Goldman Sachs International and Morgan Stanley & Co. International plc (“Morgan Stanley”) are acting as joint sponsors, Goldman Sachs International and Morgan Stanley Securities Limited (“Morgan Stanley Securities”) are acting as joint bookrunners of the Offer. Barclays Capital, the investment banking division of Barclays Bank PLC, (“Barclays Capital”) and Numis Securities Limited (“Numis”) are acting as co-lead managers in respect of the Offer.
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