Playtech buys online finance co CFH for $120m

Teddy Sagi

UK company CFH Clearing provides B2B liquidity solutions to brokers working with large banks.

Playtech Cyprus Ltd. (LSE:PTEC), developer of software-based solutions for online gambling and gaming sites, continues expanding its financial activity, which it launched last year in an effort to become a significant player in online trade in securities and derivatives.

The company, controlled byTeddy Sagi, has acquired CFH Clearing for up to $120 million; the acquisition will be made in two stages, as is customary with Playtech.

In the first stage, Playtech will pay $43.4 million for 70% of CFH Clearing's share capital, representing a multiple of approximately 7x the current EBITDA run rate. At the second stage, it will buy the remaining 30% for no more than $76.6 million, at a multiple of 6x CFH results for 2018. That is, the acquisition of the rest of the shares will be made no earlier than 2019

CFH Clearing was founded in 2008 and is part of CFH - an investment group founded by two leading UK private equity funds. CFH Clearing has about 100 employees, including a 70-person IT staff.

The company defines itself as supplier of advanced, high-liquidity, financial products for the financial trade industry. The company serves as a straight through processing (STP) agency, which provides retail brokers with prime brokerage service that enables them to receive the best position for them in moments.

The acquired company's revenue is based on clearing fees or technology services provided to over 400 clients in 80 countries. The company is considered one of the leading B2B (business to business, in contrast to B2C, business to customer) providers for technology (such as liquidity control and real-time risk management) and clearing in the industry.

Playtech financial activity, which at present includes only TradeFx, Sagi's private contract for difference (CFD) trading company acquired from him, after the attempted acquisition of Israeli companies Plus500 Ltd. (LSE:PLUSP) and Ava Trade has not been realized. Playtech's financial operations have started on the wrong foot, and not only because these acquisition deals have been called off. Soon after it acquired TradeFx (which had changed its name to Markets), the latter's performance began weakening, among other things because of tightening regulation. This forced Markets to cut a third of its employees, according to Playtech's reports for the first half of 2016.

After the two acquisitions mentioned above have not been realized, Playtech clarifies in its press release that the acquisition of CFH had been approved by the UK Financial Conduct Authority (FCA) and that Sagi, Playtech's controlling shareholder, received the FCA's approval.

Playtech's reports also indicate that revenue from its financial activity was €31.3 million in the first half of the year, compared with €43.2 million in the first half of 2015, a substantial, 28%, annual slump.

As mentioned, Playtech is now trying to boost its financial activity by acquiring CFH Clearing, which, according to the volume of its activity, is still smaller than Markets. CFH Clearing reported $19.2 revenue for 2015 as well as $5.7 million EBITDA (earnings before interest, taxes, depreciation, and amortization). That is, an EBITDA margin of almost 30% - typical for companies of this type.

Published by Globes [online], Israel business news - www.globes-online.com - on November 14, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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