Playtech to buy online finance CFH for up to $120 million

Gaming software development company, Playtech Cyprus Ltd., controlled by Teddy Sagi, has acquired Consolidated Financial Holdings (CFH) for up to $120 million. the acquisition will be made in two stages, as is customary with Playtech.

The deal it said will enhance its position as it continues to build a B2B offering in its financials division.

Playtech is now trying to continues boost its financial activity, which it launched last year in an effort to become a significant player in online trade in securities and derivatives. However, acquiring CFH Clearing, according to the volume of CFH activity, it is still smaller than Markets (former TradeFx).  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.

In the first stage, Playtech will buy 70% of CFH for $43.4 million, representing a multiple of approximately 7x the current EBITDA run rate, upon completion of the acquisition, which is expected to take place on 30 November.

For the remaining 30%  Playtech will pay no more than $76.6 million, at a multiple of 6x CFH results for 2018. CFH’s management team are remaining with the business, and can be exercised in 2019.

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

The acquired company serves as a straight through processing (STP) agency, generates revenue primarily from trading volume processed through its brokerage platform, either as clearing fees or technology services. It currently has over 400 customers and partners worldwide in more than 80 countries, which service thousands of retail customers worldwide.

Playtech’s chief executive officer Ron Hoffman said: “The acquisition of CFH will strengthen Playtech’s offering in the B2B market of financial trading and provide the foundation for future acquisitions as well as to become one of the only businesses to offer proprietary, dedicated B2C and B2B platforms to clients.

“CFH has proven technological capabilities and has developed not only a leading platform in the Straight Through Processing brokerage industry, but also relationships with an impressive range of retail brokers operating in a variety of jurisdictions worldwide, alongside long term relationships with a suite of tier 1 banks, prime brokers and liquidity providers.”

Playtech financial includes only TradeFx (which had changed its name to Markets) after contract for difference (CFD) trading company acquired and after the attempted acquisition of Israeli companies Plus500 Ltd. and Ava Trade has not been finalized.

Playtech’s financial operations have started on the wrong foot, Globes report, not only because these acquisition deals have been called off. Soon after it acquired TradeFx , 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.

In its press release Playtech clarifies 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.