Betfair IPO

panacea

Anyone have an informed view or thoughts to share on the forthcoming floatation of Betfair and what proportion of free float is expected to result from the IPO.

They announced an indicative floatation price range of £11 to £14 per share valuing the core gaming business at a multiple of between 21 and 28 times forward earnings the upper end of which seems a little steep but the lower price range is in line with Paddy Power which has a similar market cap and is trading at a P/E of approx 22.2 times after recent dividend payment.

Business model is pretty robust without being exposed to the cost of high street presence from traditional bookies all of whom seem to be increasingly reliant on their online business segments to deliver continued growth and increased margins.

Is it likely that the IPO lead to potential consolidation in the near term?

woodseb

panacea wrote: »

Business model is pretty robust without being exposed to the cost of high street presence from traditional bookies all of whom seem to be increasingly reliant on their online business segments to deliver continued growth and increased margins.

Is it likely that the IPO lead to potential consolidation in the near term?

can't see them going for consolidation - they are not bookies in the traditional sense insofar as they don't take risk or make prices - they should be seen as an exchange and if there was ever consolidation it could be with some financial exchange or brokerage

there is huge potential in betfair if it gets access the the US market too which they are working on, there's quite a low float been offered too which should help the price

panacea

My thoughts on consolidation were more in line with Betfair being a potential targer than an aquirer .....

..... not sure what percentage of the company is being floated in the IPO but 25% of the company which is currently held by circa 600 small shareholders will be included in the free float and the company founders also own about 22.5%

Raskolnikov

Horse racing is the only sport that you're allowed to gamble on in the United States. Compared to the UK and Ireland, horse racing and gambling are both highly looked down upon from a moral and social point of view (gambling is highly linked to organized crime). Also, the Republicans have already banned foreign internet bookies from operating in the United States (2006) and the Democrats would also be equally opposed to online gambling. If Betfair could somehow get a toehold in the United States with their exchange service, it would take decades, not months or even years. This is the same for many other markets around the world (France, Holland, China, India, Japan, Arab countries, South America, etc.). If you ask me, the real issue with Betfair is not expanding into banned markets, it's to try and hold their position in existing markets. The UK is Betfair's biggest market by a mile - they're already making noises about hitting Betfair, that would be catastrophic for Betfair.

The business is wonderful (people swap money on the exchange, Betfair simply takes a cut), the problem is that the regulatory environment worldwide is incredibly hostile towards online gambling.

D-Generate

As an aside, the book "You Bet" is a pretty decent book covering the creation of Betfair.
Also worth reading is the economist special report about the gambling industry from July 2010.

Gambling in the US is becoming even more restricted these days and they are cracking down on internet gambling big time. It was the case a few years ago that internet gambling was largely unregulated and legally grey but now they are doling out prison sentences to operators of gambling websites. Consider the case of Gary Kaplan of BetonSports who was arrested in the Dominican Republic and extradited to the US and is now in a lovely orange jumpsuit.
It also doesn't look likely that this situation will change, the American public are largely against legalizing gambling. I figure they like going to Vegas but then extrapolate that if gambling was legalized everywhere would be as garish and tacky as Vegas, this is certainly true from talking to my friends that are US citizens.

Betfair is also experiencing new challenges from the traditional bookies. They realized that Betfair's attractiveness was the in game betting and now William Hill, Paddy Power et al, have in game betting.
Betfair is also facing criticism from the British Horseracing Association as they think that Betfair is not contributing to the growth of horseracing. I wouldn't be surprised if a levy might be applied to bets placed in the horseracing market.

woodseb

with regards the the US market - i accept that legalised gambling is a long way away, i was referring to some of the other avenues it has been trying to get into recently...


from FT...

Now, Betfair acquired TVG, a ‘legal’ onshore internet horse racing business in 2009 for $50m.

TVG, which also runs a TV channel broadcasting races and racing news into 35m American homes, makes its money by acting as an agent for US horse racing totes — routing internet bets to the totes in return for a fee, according to Numis.

Betfair considers TVG to be its bridgehead to the States and the company has been lobbying hard in California and New Jersey for legislation that would allow horse race exchange betting.

And it has enjoyed some success. California has passed a law that will enable exchange betting on horses from May 2012 and New Jersey has a similar law at an earlier stage in the legislative process.

If investors really believe Betfair can crack America then it’s possible the IPO valuation could be higher than £1.5bn (forecasts EBITDA for 2012 is just over £100m).

turbobaby

Is 15 times EBITDA not a bit high!?

Any idea what Paddypower's EBITDA to valuation ratio is?

daveirl

This post has been deleted.