Last year, BwinParty became akin to a £200,000-a-week footballer that had just been placed on the transfer list. Whoever could get their hands on the firm would make a bold statement at a time when M&A is more crucial than ever to a consolidating industry. There were various suitors, not least 888 Holdings, but eventually it was GVC that prevailed. It agreed a headline-grabbing deal to acquire BwinParty for 25p in cash plus 0.231 new GVC shares per BwinParty share.
The firm’s CEO Kenny Alexander talked to us at its London office after announcing the planned acquisition, which is the most significant development in its history. Alexander, who began his career in the gaming industry with Sportingbet, has gradually but steadily grown GVC to a position of real power. GVC’s share price has risen from 76p in January 2007 to 380p in November 2015, although it did drop from 435p when the BwinParty deal was announced.
When looking at the journey the firm has been on in Alexander’s time there, the BwinParty deal could appear as the natural next stage of the progression it has made via a series of acquisitions. Alexander joined as CEO in 2007, after previously serving as finance director and then managing director of European operations at Sportingbet, where he began working in 2000 following a shift from his background in accountancy.
I think the company will be the largest online sportsbook in the worldIt was clear to Alexander from the outset that a shake-up was needed. “When I joined GVC, we only had Casino Club, a small German-facing casino,” he said. “I think we only had about 14 employees and I think I got rid of all of them bar one after the first three months, because it was very poor-quality people we had. Now, we’ve got over 700 people. It missed a lot of its numbers. There wasn’t much expertise in the business. We kept a couple of the people who I thought were of decent enough quality. We brought in some new people to the business and built it up from scratch.”
The company branched out of Germany and the casino vertical when it bought online Brazilian operator Betboo for an initial consideration of $4m in 2009, before purchasing Alexander’s former employer Sportingbet in 2013 for 56.1p per share, with William Hill acquiring Sportingbet’s Australian business. GVC had initially agreed to buy Sportingbet’s Turkish-facing business on an earn-out, aided by the fact that GVC was already operating in the country and of course Alexander’s connection to Sportingbet.
Then came the star of the show this year. After making an initial proposal of 110p-a-share, GVC was forced to up the price when it was announced in July that 888 was to acquire BwinParty for 104.09p-a-share. Alexander and GVC were not to be deterred. “We were always pretty confident. The reason they were going with 888 is that at that time we were working with Amaya and the deal was that Amaya were going to take some of the gaming assets and we were going to take the sportsbook. There was then going to be some sort of arrangement down the line to sell the sportsbook to Amaya. But that deal became quite complex, because we had Cerberus who were providing our debt and we had Amaya. Splitting up the BwinParty business between the gaming part and the sportsbook part was problematic. We were 90% there and we would have got there, but I think the BwinParty board were anxious, because they had somebody who was 90% there and somebody who was 100% there, which 888 were.”
The details of Amaya’s involvement and subsequent lack of involvement in this deal had not been entirely clear until this interview. The owner of the PokerStars and Full Tilt brands was confirmed to have been jointly funding GVC’s initial proposal to buy BwinParty four days after terms of the proposal were published in May. It was revealed to Gambling Insider when GVC said in August it had increased its proposal to 125.5p a share as a result of new financing that Amaya was no longer involved in the deal. Alexander said: “They were still interested in continuing in the process, but they had a roadshow for the funding of their debt in New York which David Baazov had to deal with and was going to take them two or three weeks. He basically wanted to take three or four weeks off to deal with the roadshow and the debt and then he would come back and we would get the deal done. I didn’t think we had three or four weeks’ time. I thought we had to move quickly, so we parted ways very amicably. There’s no reason why we can’t do another deal with Amaya down the line. Some people have suggested we’ve got a secret deal that’s been done with Amaya and is sitting in my top drawer or something like that – that’s absolute nonsense.” Ultimately, GVC was able to snatch BwinParty from 888 and the final accepted proposal was confirmed in September.
While BwinParty was highly sought after, there is also the question of why GVC wishes to take the plunge and put itself in the position of responsibility for being the one to try to turn the company around. After being formed by the merger of Bwin and Party Gaming in 2011, some of the numbers have been far less than pleasing on the eye.
Some people have suggested we’ve got a secret deal that’s been done with Amaya and is sitting in my top drawer or something like that – that’s absolute nonsenseThe operator made a loss in two of the first three full years that it was in operation, with the loss for 2014 totaling €94.3m after tax. Its share price dropped from a high of over 200p shortly after it began operating in April 2011 to below 80p in March last year, though it recovered and climbed above 100p later in the year. So despite the fact that this deal has catapulted GVC into the spotlight, why should GVC want to buy BwinParty? Alexander says: “There are €125m in synergies and then you’ve got potential revenue growth. Yes, we’ve got €400m of debt, yes there will be 289 million shares, but if you do all the maths and we restructure this business properly, then you should see GVC shareholders and obviously BwinParty shareholders get a proper multiple on that. The whole idea is that we expect the business to perform materially better once we get our hands on it than it has historically. It was the same with Sportingbet. Everyone asked why we were buying that and even the BwinParty sports-betting management said we would run out of money in the first six months without any shadow of a doubt, but we didn’t run out of money. Anybody who took GVC paper at that time has seen their investment more than double since we acquired Sportingbet. I don’t see any reason why we can’t do a similar job with BwinParty. In many ways, BwinParty is in better shape than Sportingbet was when we took that over.”
Alexander did not duck a question about why it is seen by some that BwinParty has taken the more risky option in accepting GVC’s bid over 888’s. “I think they think it’s maybe more risky because maybe there’s a perception that GVC is smaller than 888 and therefore they’re doing a deal with a smaller operator. I actually think it would have been far riskier to run with 888. If you’ve got a business that is underperforming, needs restructuring and two thirds of the revenues have come from sports betting, would you give the business to a company that’s never primarily done sports betting and has never done a restructuring? Or do you give it to a company that does primarily do sports betting and has done a restructuring?
“The fact is if we restructure it properly as we say we’re going to do it and we return BwinParty to growth, we get a proper multiple and the GVC share price should be significantly higher than it is today. The business has been underperforming, but look, if it performs as badly as it’s been doing in the last three or four years, then you won’t be doing an interview with me in two years’ time.”
Various sources have claimed that GVC’s operations in grey markets partially form the reason why there is risk involved in the deal. This is another topic that Alexander seemed unflustered addressing. “We don’t choose to operate in just grey markets. Wherever you can get a licence, GVC gets the licence. If there’s no licensing regime, then we will stay in that market and exploit that opportunity. To be fair, the market where we’ve made the biggest difference is probably Turkey. We’ve stayed in Turkey and others haven’t, but we’re not the biggest in Turkey and in the enlarged group Turkey’s going to be quite a small part of the overall revenues.”
While GVC does not currently operate in the US, buying BwinParty will allow it access to New Jersey via BwinParty’s partnership with Borgata. Alexander was refreshingly honest on this topic. “I’m not confident we can compete credibly with PokerStars. We are applying for a New Jersey licence. The idea would be to run the US business differently from BwinParty. It’s been losing a lot of money. The idea would be to take some cost out of the business and run it to break even. One of the issues BwinParty has had is that it’s tied itself in knots and relied a lot on the US business opening up, and obviously it hasn’t really opened up in the way they had hoped. That has damaged their business. The US is not a big part of our overall strategy.”
There had been plenty of serious topics for us to address, so it was refreshing when Alexander cracked a joke about GVC’s future acquisition strategy. We mentioned an interview Alexander conducted with The Sunday Times in September, where he said the company would be looking at new acquisitions in six months. Halfway through asking a question about this, we were cut short as he said: “Six? I must have been feeling bullish. Our finance director’s having a meltdown at the moment, so I’m not too sure it will be six! It’s more realistic to look at this time next year [October 2016]. What markets? I don’t know. Probably more regulated markets, to be honest with you. We’ll possibly do something in the UK. But we certainly won’t stop at BwinParty, unless we do a bad job of it and then we won’t have any option but to stop.”
That is not the end to Alexander’s ambitions. Where does he see the company in five years’ time? He answers with one sentence: “I think the company will be the largest online sportsbook in the world.” Is GVC’s performance going to match that prediction? We can’t wait to find out.