Paddy Power Betfair acquires majority stake in Adjarabet_1

In a move that further diversifies its European online business, London-listed retail sports betting and gaming operator, Paddy Power Betfair PLC  (PPB:London) has acquired an initial 51% in one of the Eastern European nation of Georgia‘s leading operators, Adjarabet, for €116 million (US$132.9 million).

According to The Irish Times…

In a Friday note to Euronext Dublin, the company said it expects to purchase the remaining 49% stake in the Georgian market leader after three years via mutually agreed upon option arrangements.

Marketing exclusivity:

Licensed in the Georgian market to offer a complete suite of online gaming and betting products, including peer-to-to-peer games, poker, sports betting and casino titles. Based on customer deposit data, the company holds an approximate 40% market share in the country. And thanks to an exclusive marketing relationship with the Georgian operator, also has a presence in its neighbor to the south, Armenia.

Brand strength:

A “key component” of this, said Paddy Power Betfair, was the brand strength which among the former Soviet republic’s population Adjarabet has an estimated 86% spontaneous brand awareness. That is, they said, “significantly higher” than the competition.

Having launched the operation during 2017 in Armenia’s developing regulated online market, Adjarabet won an approximate 10% share of the market there by the end of last year.

Revenues of 215 million Georgian lari ($US80,903,102.50) were generated by Adjarabet last year and earnings before interest, taxes, depreciation, and amortization (EBITDA) of 68 million lari ($US25,587,958.00).

The remaining 49% stake in Adjarabet may be purchased -either with cash or shares- by Paddy Power Betfair after a period of three years, at a valuation that is equivalent to 7x’s the operator’s EBITDA in 2021.

Two-market access:

Paddy Power Betfair said that the acquisition provides it with exposure to “two attractive, fast-growing, regulated markets,” according to the Irish news agency.

From 2016 to 2018, Georgia’s online market has grown at an estimated compound annual growth rate of 40% to approximately €206 million ($US236,024,500.00) of gross gaming revenue. The developing Armenian market is expected to provide further opportunity for growth.

Davy forecast analysis:

An analyst with Irish wealth management company, Davy Group, reportedly said the acquisition “appears to fit neatly” with Paddy Power Betfair’s business strategy.

Adding that…

“It has added the dominant gaming business and brand in the highly attractive (fast-growing, regulated) online Georgia gaming market.

“While reasonably modest in the context of the overall group, it is a timely reminder that the group investment thesis extends beyond merely the evolution of sector regulation. The suite of growth opportunities available to Paddy Power Betfair, both organically and inorganically, remain extremely attractive,” according to The Irish Times.

The analysts reportedly said that it’s likely that the acquisition would add a low-to-mid-single percentage to the stockbroker’s 2019/2020 adjusted earnings forecasts for Paddy Power Betfair.

Jackson take:

The Dublin-headquartered bookmaking businesses’ chief executive officer, Peter Jackson (pictured, left), said…

“This bolt-on acquisition is in line with our strategy of establishing podium positions in attractive online markets.

“Adjarabet’s leading brand presence and strong management team has established it as the clear number one in the fast-growing, regulated online Georgian market.

“Together with our group’s technology and sports capabilities, we are confident that Adjarabet will be strongly positioned to continue to build on this success,” said Jackson.

Paddy Power Betfair acquires majority stake in Adjarabet_1