Interview: John Kennedy Fitzgerald, CEO, Intertain
Published 25th May 2015
Intertain has, via acquisition, transformed from a holding company into a significant listed iGaming operating business in a very short time. How did this come about?
CFO Keith [Laslop] and I founded the concept and idea, and even though we have been public for a year, having floated last February, have been working on the project for over 30 months. The acquisition of InterCasino from Amaya was the base for us to take our project public, and the plan was and continues to be turn around the InterCasino business, and launch a series of acquisitions that would put us in a dominant position in the online bingo space. I feel that most of our competitors are focused really on the male audience, so I think there was a huge opportunity to get into that dominant position with a focus on the female demographic with a bingo led offering. What’s really exciting for me is that our peers whom we are compared against are already global businesses. In fact, they are shutting down jurisdictions just because of the regulatory risks associated with those. We however have this massive business now that is really only in the UK, Spain and Sweden, with a global opportunity to take our business into new, regulated jurisdictions. What I love about our business is we now have one of the highest percentages of online gaming revenues – over 80% - from regulated jurisdictions. We are very proud of that fact, and we are going to get better at increasing that percentage up towards 100%.
You however started off by acquiring two dot.com casino businesses, and then two female-focused businesses in regulated markets. How will these two components work alongside each other?
You have to remember that over 65% of InterCasino’s business comes from the UK, so it’s a very large UK business. And it’s got a heavy slot focus. But yes, we will be focused on the female demographic generally across all our businesses, based on a bingo-led model. You recently added the Jackpotjoy brand to the Costa Bingo properties you acquired last year. What share does this give you of the UK market? With this acquisition, we are going to end up with 26-27% of market share among those operators with a bingo-led product, with I think the nearest competitor being Sun Bingo, with around 14%. So we are in a very strong position and given that we have traditionally operated on very good margins, we feel the place-of-consumption tax that was recently introduced in the UK is going to further help our business. It’s going to create opportunities for us, because some smaller players that have been operating on lesser margins are going to find themselves in a difficult situation. So we think our organic growth prospects in the UK are still quite good.
You agreed decent premiums for Costa and Gamesys ahead of the point-of-consumption tax (PoCT) coming in. Was this not a risky strategy, given the UK bingo market has been flat of late, analysts are spit over the impact of the tax, and a hike to 25% has been mooted?
Not at all, I think in fact it’s the opposite. All our acquisitions have been based on paying multiples that include the pointof-consumption tax, and we feel that an important advantage of being a dominant market player is that you can absorb a tax because your margins are better relative to your peers. All our transactions, as least based on the UK portion of revenue, have been factored on a multiple that includes the effect of the point of consumption tax.
The Gamesys deal saw you acquire the brands (and the profits) but not the technology behind Jackpotjoy, Botemania and Starspins. What is the rationale behind this deal structure, and how did you arrive at this?
My business strategy - and some people have criticised it but in time I think it will be proven to be right – is that in order to grow globally, it’s good to be a on a variable cost model, so you understand your costs when going into new jurisdictions. For every pound or dollar I make, I end up with an average of 80 cents or 80 pence of that dollar by paying a variable cost to my supplier. So I think as you expand globally, having a variable cost model is intelligent, it’s predictable, and when we get to a certain scale it will make sense for us to own our own platform and technology. We actually have that option anyway with the Vera&John acquisition. So it’s something that over the years we will keep the variable cost model, but when we get to a certain scale, we will definitely look to increase our margins by getting our own platform. For the Gamesys acquisition, we’ve raised approximately CA$850m that’s got to be paid out. They have an earn-out as a component of that. They will get paid a substantial amount upfront, they are taking a CA$100m worth of stock. During the earn-outs for all our acquisitions, the companies are very incentivised to knock it out of the park. If you look at our Q4 results, you will get an indication of what our companies are doing and how well we are doing, and the markets we are in, and how well the acquisitions have gone so far.
Canada is a hotbed of iGaming-related leveraged buyouts and reverse transactions. at the moment. How important has this environment been to Intertain’s ability to acquire and realise its growth strategy?
I think as long as Keith and I continue to execute on our model and deliver results, then the capital markets will be very receptive to our business. It comes down to execution, and if you execute and you’re profitable, you’ve got a following of people that are making money with you, and that then tends to bring more money with it as well.
You’ve acquired diverse businesses with different models, platforms, markets, office/team locations etc. Will there be any reorganisation to take advantage of potential synergies, or keep them running as they are?
We will keep them as they are. Why mess with something that works? We look at the revenue synergies as opposed to the cost synergies. So, to look at a lot of our competition, they base their acquisitions on gaming and cost synergies, so maybe getting rid of a platform, or integrating some people. But my philosophy again is different from my peers. I think running successful businesses with their own P&L is the right way to proceed. You look at the likes of bwin.party, they tried to integrate software and people, and look at the difficulties that came with that. My view is, let’s focus on the revenue synergies moving forward and not the cost synergies.
Which new markets are you looking at?
The Netherlands is looking to regulate next year. We will be leading into that market with Costa. There’s also slots in Spain launching this year. We are number one for online bingo in Spain with Botemania, so we are very much looking forward to the introduction of slots there. Also, organically with the existing business, we can do quite well in jurisdictions in which we are in. So, we are really well placed. Vera&John is a great global brand as well, and what I love about them is that they have bingo as part of their DNA. They founded Maria Bingo, and that really gives us great depth in terms of expanding our bingo business. Alongside Intercasino and Jackpotjoy, those are the brands we are going to really focus our attention on. I think it’s important to understand we have a substantial base of business in the global pond. And I love the fact we are looking at expanding our markets, because most of our business comes from the UK, Spain and Sweden. As markets open up from a regulatory standpoint, we will go into those markets on a big way.
Intertain’s business is almost entirely European-focused. Do you have any plans for the North American markets, and if so, what form are these likely to take?
That’s because we’ve established our base business there. Obviously, those markets are more mature, they are in the process of being regulated or are regulated, and as other countries around the world regulate, we are going to go in and attack those markets. In Canada, there’s no real opportunity at the moment. There are options in the US, in terms of New Jersey and others, which we can go into, but I think globally there are some better markets that exist right now, that are better for us initially. But we have our eye on the North American marketplace. We are currently working on a Mexican licence, and as more states in the US open up, that’s definitely going to be within our sights. What’s important also is having the regulatory profile that we do, with most of our revenue coming from regulated markets. I think that will help us from a competitive standpoint, in terms of potentially getting into those markets.
Which brand or brands would you look to go into Mexico with?
We are discussing that now, but obviously with the brand awareness that Jackpotjoy has with it, and we are trying to build that business up globally, I think you will see us leading forward with Jackpotjoy under our bingo-led business, and on the casino-led business, we would be looking at Intercasino.
You’ve undertaken four big acquisitions in quick succession. Can we expect this activity to continue or will the near term focus be strictly on growing organically?
I’m going to have a breather next week when I’m on family vacation! That said, I am always looking at opportunities, and I’m not going to slow down that process because we got to where we are so quickly. There are always various different opportunities I am looking at.
“We now have one of the highest percentages of online gaming revenues in the global sector - over 80% - from regulated jurisdictions.”
“With the Jackpotjoy acquisition, we are going to end up with 26-27% of UK market share among those operators with a bingo-led product.”
“We are currently working on a Mexican licence, and as more states in the US open up, that’s definitely going to be within our sights.”