Agreement on CFH enhances Playtech's B2B offering in Financials division
Playtech plc announced Monday that it has agreed to acquire Consolidated Financial Holdings A/S, a technology company with products including a leading Straight Through Processing ("STP") brokerage which provides retail brokers with multi-asset execution, prime brokerage services, liquidity and complementary risk management tools.
In a company statement, Playtech management said the acquisition will enhance Playtech's position as it continues to build a B2B offering within its Financials division.
CFH's wholly owned subsidiary, CFH Clearing Limited is regulated by the Financial Conduct Authority and Playtech confirmed that regulatory approval has been received.
Playtech will acquire 70 percent of CFH upon completion of the acquisition, which is due to take place on . The remaining 30 percent will be subject to put and call options between Playtech and CFH's management team, who are remaining with the business, and which can be exercised in 2019.
CFH has proven technological capabilities and 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, and is considered one of the largest and most reputable B2B providers for technology and clearing in the industry.
CFH Clearing is one of the top STP venues in the world with liquidity services and $1.5 billion in direct interbank credit lines with tier 1 banks, liquidity providers and prime brokers including Barclays, Goldman Sachs, UBS, Jefferies and BNP Paribas. Through its relationships with liquidity providers and prime brokers, CFH is currently able to offer liquidity on approximately 110 instruments.
Revenue and adjusted EBITDA generated for the year ended was $19.2 million and $5.7 million respectively, while recent trading has reflected an annual revenue run rate of $29 million on the back of an uplift in volume from further organic growth of the business and new customers being on-boarded.
Playtech management says the acquisition represents multiple benefits for CFH, including improved trading terms and more attractive margins thanks to Playtech's scale and financial strength;
There are multiple benefits in CFH becoming part of Playtech's Financials division:
CFH will remain a provider of STP processing and, due to Playtech's scale and financial strength, it will be able to provide its customers with improved trading terms and more attractive margins; a deeper pool of liquidity, enabling more competitive prices and faster execution; access to Playtech's wide range of CFD instruments and proprietary trading platform and other technology; and leveraging Playtech's technology and expertise in the further development of the CFH products.
The consideration agreed in the acquisition is $120 million, comprising an initial consideration of $43.4 million, on a cash free / debt free basis, for 70 percent 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 percent 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 , capped at $120 million less the initial consideration ($76.6 million) for the 30 percent.
CFH's management will remain with the business following completion and will retain the remaining 30 percent of CFH which is subject to the aforementioned put and call option.
Completion of the acquisition, which is subject to the satisfaction of certain conditions, is expected to take place on . The acquisition is immediately earnings accretive for Playtech.
Reporting on current trading in Playtech's Financials division, management said Monday that the division has seen very positive signs of improvement in first time depositors and active customers in H2 2016 although overall performance has been impacted by low market volatility.
Ron Hoffman, CEO of the Financials division, 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."
Christian Frahm, Founder and CEO of CFH, said: "Being part of Playtech gives us access to technology, significant resources and expertise to become the number one B2B provider in the industry."
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