INSIGHT
APPETITE FOR CONSOLIDATION
Going by the evidence of recent fundraising efforts, the hunger for further deals on the part of investors is showing no signs of abating, writes Scott Longley
IN JANUARY, XLMedia announced an“ oversubscribed” share offering that raised £ 31.7m. This, it said, would be used to help the company capitalise on acquisition opportunities it had identified in“ key verticals”, including gambling.
The offering came two days after the business announced its most recent deal:
the € 15m all-cash buyout( including € 7m up front and the rest through an accelerated six-month earn-out) of Finnish-facing online casino affiliate network Good Game( See Table 1).
Meanwhile, the gambling affiliate market consolidator-in-chief, Catena Media, shows no sign of losing its hunger for more deals. In mid-February, it announced the successful placement of € 150m in new senior unsecured bonds, refinancing its existing € 100m bond loan and increasing the framework amount to € 250m, allowing it to further flex its mergers and acquisition( M & A) muscles.
That was certainly the message from the analyst meeting following Catena’ s year-end results announcement in early February, when then acting chief executive
Henrik Persson Ekdahl said the company’ s three-strong M & A team was“ scouting the globe”, while also signalling a“ very interesting pipeline” of potential deals.
Noting that the company had“ only” done 28 deals since 2014, he added that the team were looking at between five and 10 companies every week, and that
“ There will be start-ups setting out now to target only black or dark grey markets” Charles Gillespie, Gambling. com Group
it was being“ quite selective” about which opportunities it plumped for.“ An acquisition needs to add clear value to what we have,” he said.“ This isn’ t just multiple arbitrage. We are buying products, systems and assets that we really like and which we believe will grow long term.”
Price escalation Ekdahl was keen to emphasise that he didn’ t believe buyout multiples were on the rise despite the current consolidation fervour, pointing to multiples for the deals Catena has completed of between two and six times EBITDA.“ We don’ t see a change in dynamics for price or how we structure,” he added.
Charles Gillespie, chief executive at Gambling. com Group, which itself raised a total of € 16m via the issuance of two convertible bonds last year, agrees that while there is some multiple inflation, it is not significant.
“ All the deals we have done have been in a similar range and the multiples have not really changed,” he says.“ We’ ve plotted the multiples on a graph over time for all the affiliate deals and the trend line has a positive slope, but only just barely. The bottom line is they are not really changing. The sellers, however, are a bit more sophisticated and arrive knowing what they want.”
Still, the quantum of buyout prices is certainly picking up. Although not all the sums for all the deals we have seen in recent months are available, the ones that have been disclosed would have been viewed as eye-popping just a couple of years ago.
Catena Media’ s Baybets deal is a good example. The headline buyout price for the German-facing sports and financials business was € 26.5m, half to be paid in shares, with an earn-out of up to € 63.5m. With forward-looking revenues of € 9m on a 70 % profit margin, it means the multiple of 4.2 times sits within the two to six range that Ekdahl suggested were the company’ s parameters.
The earn-out is very much a maximum figure. But what Catena considers a“ reasonable” scenario has risen to € 39m
48 iGB Affiliate Issue 68 APR / MAY 2018