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Amaya Eyes Acquisitions

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(BN) PokerStars Owner Amaya Eyes Acquisitions After Difficult Pe
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PokerStars Owner Amaya Eyes Acquisitions After Difficult Period
2017-03-24 09:00:00.7 GMT


By Sandrine Rastello
    (Bloomberg) -- In his first year as chief executive of
online gambling company Amaya Inc., Rafi Ashkenazi has made
careful moves. Now his appetite for risk is growing.
    Promoted after founder David Baazov stepped down amid
insider trading charges and poor earnings performance, Ashkenazi
has focused on paying down debt, installing a new management
team and lessening the company’s exposure to the unstable
online-poker business. His pragmatic style of management has
helped him regain investors’ confidence, with the stock up 31
percent since he took the helm as interim CEO last March.
    This summer, the world’s largest online-poker company will
have money to spend after finishing paying for its $4.9 billion
purchase of sites PokerStars and Full Tilt, a deal struck in
2014 under Baazov. That means the Pointe-Claire, Quebec, company
will be on the hunt for deals.
    “We are very open to acquisitions generally,” Ashkenazi,
42, said in an interview at an Amaya office outside Toronto.
He’s now recruiting someone to focus on M&A, with the “highest
priority” on sports betting.
    Unlike his predecessor Baazov, the creative force behind
Amaya who made bold wagers on deals, Ashkenazi is an engineer by
trade who got hands-on experience in stints as chief operating
officer at gaming companies like Playtech Plc and Rational Group
Ltd., the PokerStars owner Amaya acquired.
    Now, with Baazov no longer attempting to take the company
private, Ashkenazi is firmly in control. He has hired people to
head the casino and sports division and is close to choosing a
new chief financial officer. He’s even going to propose changing
Amaya’s name, he said, without disclosing the new moniker.
    “I’m far more driven by managing actively risks,” he said.
“I always plan for the worst and I always try to be ahead of the
curve.”
    One risk is poker. The business has been in decline since
the U.S. outlawed online-gaming companies and professional card
players started elbowing out amateurs. The market peaked at $3.3
billion in 2010 and now accounts for 6.2 percent of all global
interactive gambling, down from 17 percent in 2006, according to
consulting firm H2 Gambling Capital.
    Acquisitions could boost Ashkenazi’s efforts to diversify
beyond poker to faster-growing businesses. The game made up 70
percent of the company’s total revenue in the fourth quarter
compared with 78 percent a year earlier, while the share of
online casino games and sports book rose to 26 percent from 17
percent.
    “Amaya has done well to persuade their poker players to try
their casino product,” said Warwick Bartlett, chief executive
officer of Global Betting & Gaming Consultants, based in the
Isle of Man. “The sportsbook has been less successful and faces
a competitive market where the majors have established
significant volume and price efficiency.”

                          Debt Load

    Even with a healthier balance sheet, it may still be too
early for Ashkenazi to go on an acquisition spree. Amaya’s long-
term outstanding debt at the end of 2016 was $2.5 billion, and
its net debt to earnings ratio stood at 4.4, meaning “any
sizable acquisition would likely require equity,’’ Maher Yaghi,
an analyst at Desjardins Capital Markets, wrote in a note
Thursday.
    There is also the matter of reconciling past missteps in
its sports business, which Ashkenazi said included launching a
web platform before it was ready, focusing marketing efforts on
consumers who were new to sports betting instead of established
sporting gamblers, and choosing to debut in the competitive U.K.
market. Now Zeno Ossko, the managing director of its BetStars
online sports-betting division, is “changing it,” he said.
    “2017 will also be to a large extent the continuing
transitional year for us, but probably from the second half of
this year, I can be much more focused on finding ways to grow
the company, not necessarily organically,” Ashkenazi said.
    In his short time as CEO, Ashkenazi has already found
himself at the M&A betting table. Amaya considered a merger with
William Hill Plc in a deal that would have created the world’s
largest online gaming business. The companies ended talks after
U.K. activist investor Parvus Asset Management opposed the
union. But Ashkenazi said he hasn’t ruled out the possibility of
playing the hand again.
    “You can never say that anything is dead,” Ashkenazi said.
“Sometimes companies need time to reflect before they reengage
in discussions.” He added that he believes William Hill is a
“great company with a great brand” and it would be a “very good
merger.” A William Hill spokesman declined to comment.

                      Regulatory Hurdles

    Beyond M&A, Amaya is hoping as many as seven U.S. states
legalize online wagering, a jump from three now. Further out,
Ashkenazi’s “big diamond” is California. The company is also
fighting an $870 million fine in Kentucky for allegedly
violating the state’s anti-gambling laws.
    On the federal U.S. front, forces are still aligned against
online wagering. Las Vegas Sands Corp. CEO Sheldon Adelson
opposes it, and Republican senators and congressmen may again
sponsor legislation banning it. Attorney General Jeff Sessions
said during his confirmation hearing that he was against the
reinterpretation of the Wire Act that allowed online bets.
    Amaya is also preparing to pull out of Australia in the
wake of legislation making foreign online poker companies
illegal. In essence, only operators holding a license in
Australia can offer their products to Australians. To make up
for that loss and boost poker growth in coming years, the
company is entering new international markets, paring down the
perks of professional players to bring casual players back, and
targeting new audiences such as video-game players.
    Still, Ashkenazi feels he’s moved away from the company’s
most trying times.
    “The changes that we went through in 2016 were quite
dramatic,” Ashkenazi said. “Now I can focus myself on the future
of the company.”

--With assistance from Christopher Palmeri and Jason Scott.

To contact the reporter on this story:
Sandrine Rastello in Montreal at [e-mail]
To contact the editors responsible for this story:
Crayton Harrison at [e-mail]
Paul Barbagallo