CFH contributes EUR 1.8m to Playtech’s revenues in 2016

Playtech PLC (LON:PTEC) has earlier today published its final report for 2016, with FinanceFeeds’ attention pinned on the fortunes of the group’s financial division, especially after the acquisition of CFH Group in November last year.

As one would have expected, Playtech labels the acquisition as a landmark move set to expand the B2B operations of its financials division. According to the latest report, €1.8 million of new revenue has been contributed to Playtech’s consolidated accounts for 2016 after CFH’s acquisition was completed.

Needless to say, the Group offered some numbers on the acquisition.

Here is what the new report says of the CFH deal:

“The Group paid total cash consideration of €38.6 million ($41.0 million). The company will pay €0.3 million ($0.3 million) as additional working capital adjustment in the beginning of 2017.

The Group has a call option to purchase the remaining 30% of CFH at a valuation of 6 times 2018 EBITDA capped at a total consideration of $76.6 million less the initial consideration. The founder and CEO of CFH have certain put options over his 30% holding at the same valuation. The fair value of this option was recognised as a non current liability and reflected in the Groups’ statement of changes in equity. The fair value as of 31 December 2016 was €16.9 million.”

Here is what the previous report says of the deal:

“The Playtech Group will pay up to $120m (€110.1m) for CFH. This comprises:

· an initial consideration of $43.4m (€39.8m), on a cash free / debt free basis, for 70% of CFH’s fully diluted share capital, representing a multiple of approximately 7x the current EBITDA run rate; and

· an additional consideration for the remaining 30% of CFH which will be subject to a put and call option which is exercisable in 2019 at a multiple of 6.0x CFH’s adjusted EBITDA for the year ending 31 December 2018, capped at $120m less the initial consideration ($76.6m) for the 30%.”

A couple of differences to note:

• A small difference in the amount of the initial consideration paid.

• No mention of the famous $120 million figure in the new report.

The latter only confirms FinanceFeeds’ stance that it is not 100% certain that Playtech will eventually pay as much as $120 million for CFH. As FinanceFeeds has stressed in its analysis, the details of how the deal is structured are far more important to consider than the numbers themselves.

Moreover, it is useful to recall previous deals in the non-bank FX industry – deals structures in this manner, such as GAIN Capital’s acquisition of City Index, which was completed in April 2015. The actual transaction between City Index and GAIN Capital at the time of bid in October 2014 was reported to be $118 million, however subsequently, it emerged that the net purchase price was actually $82 million, including $36 million in cash.