THE NORDICS
Multiples and earnouts
Edward Ihre, co-founder of live casino
operator Codeta and a respected consultant
in the affiliate space, says the spate of
acquisitions makes sense in terms of
respective valuations between the acquirers
and their targets. “Being able to buy these
assets at such cheap valuations makes sense
when you can add their earnings to the
balance sheet,” he says.
The multiples in question vary according
to each deal. In terms of recent buyouts,
Catena’s Slotsia deal (see Figure 2) saw the
company pay €3.6m upfront for a company
which will generate an expected €300,000
in revenues in the first quarter of this year
brought Slotsia on a multiple of just over
seven times historical earnings.
Clearly if a two year-old business can
attract such high multiples, it would suggest
that the true value of affiliates is only just
starting to be realised.
Should the company hit its earnout
target of 130% revenue growth over the
next two years a further €5m would be due,
boosting the multiple to 10 times. Still, for
comparison we should note that the listed
Catena Media is trading on an historic P/E
of around 35 times.
Another recent deal, this time from
GIG, saw it snap up an unnamed
affiliate network with annual revenues of
“GIG’s recent results showed that of the 36,100 new first-time
depositors its affiliate arm Innovation Labs had referred in
2016, 19% were directed towards its own brands”
at margins of approximately 75%.
On an annualised basis this would
equate to circa €1m in operating profit.
However, according to industry sources
Slotsia only started to generate meaningful
traffic around June 2016 and recorded
annual revenues of, at most, €500,000 at
the time. With multiples based on historical
earnings, Catena Media therefore has
around €1.4m for €3.5m at a multiple of
around four times EBITDA. Again, for
comparison, until the second half of 2016
GIG was loss-making.
Robert Andersson, chief executive at
Catena Media, says the deals were not
necessarily cheap but he said the target
businesses were often unstructured and
without any underlying technology.
By plugging them into the Catena Media
network – and linking them up with the
company’s proprietary tech platform – his
company believes it can substantially boost
revenues once any acquisitions are under
its wing.
Unsurprisingly, Andersson is a believer
in the long-term consolidation story for the
online gaming affiliate sector. “The affiliate
space is becoming more professional,” he
says.
“It’s a bit like the travel industry and
what happened there with dozens of travel
sites and affiliates consolidating down to
four or five global players. We’re pursuing
exactly the same strategy.”
Attractive structures...
Ben Robinson, director of boutique M&A
specialist RB Capital, agrees and says
consolidation in the affiliate space is no
surprise if one looks at the underlying
structure of affiliate businesses.
“Many affiliates operate at very
attractive margins of 60%, if not more.
This is harder for the larger players to
achieve, scale brings higher operating costs
and when PPC and media buying efforts
are brought into the equation, margins of
25% are more common,” he says.
“Having said that, affiliates are still two
Figure 3: Gaming Innovation Group affiliate acquisitions
PROPERTY DATE FEE + EARNOUT MARKET FOCUS
Spaseeba June 2015 Unknown Scandinavia
Unnamed Finnish network July 2015 Unknown Finland
Unnamed Estonian network August 2015 Unknown Estonia
Delta Markets March 2016 $4.2m Netherlands
Magenti Media March 2016 SEK47.5m Sweden
Unnamed international network February 2017 $3.5m Unknown
Casinotopsonline.com March 2017 $11.5m UK
iGB Affiliate Issue 62 APR/MAY 2017
39