Gambling technology company Playtech (PTEC) is up 4% to 808p this morning after agreeing to buy a majority stake in TradeFX, an online contracts for difference (CFDs) and binary options broker and trading platform.

Playtech is paying €208 million cash for a 91.1% stake with an earn-out payment of up to €250 million based on future performance with a maximum cap of €458 million.

The acquisition opens up a new product vertical for Playtech which makes sense given the increase in taxes and regulation in the online gambling sphere.

We are a little sceptical given that TradeFX is majority owned by a trust for the benefit of Israeli billionaire Teddy Sagi, Playtech’s founder and largest shareholder.

PTEC - Comparison Line Chart (Rebased to first)

Playtech says the acquisition is ‘immediately significantly earnings enhancing’; analysts expect low double digit earnings growth.

TradeFX produced $35 million of earnings before interest, tax, depreciation and amortisation (EBITDA) in 2014 with a group margin of approximately 40%. Playtech believes there is scope to achieve significant growth in TradeFX by combining it with its technology and marketing expertise.

‘The sector remains somewhat fragmented and the directors believe that this is likely to give rise to further acquisition opportunities,’ it adds.

Current trading for TradeFX is encouraging with net revenue up 88% year-on-year. Northland Capital says on the current run rate and at 8x EBITDA for the cash earn-out the maximum cap of $€458 million should be achieved.

Issue Date: 02 Apr 2015