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Streetwise Intertain buys $811-million in online gambling assets

As dealmaking increases, the online gambling sector is heating up.

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Toronto-based online gambling company The Intertain Group Ltd. announced Thursday it is buying a suite of online bingo assets worth approximately £425.8-million ($811.6-million) from U.K. company Gamesys Ltd. If certain performance metrics are met, the value of the deal may end up exceeding $1-billion. Intertain, whose market cap is around $550-million, is set to acquire assets that are worth about two times more than itself. Rumours of the deal have been swirling for months.

Privately-held Gamesys operates the popular Jackpotjoy and Starspins properties, which generated about $120-million in free cash flow in 2014. The acquisition will be paid for in a roughly 50/50 split between debt and stock.

There are vast sections of the globe where online gambling is illegal, such as in most U.S. states, but "over 90 per cent of this business comes from the U.K., which has a regulated online gambling market," said John Fitzgerald, CEO of Intertain in a telephone interview.

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"I want to make sure that the revenue is sustainable, that we're not breaking any laws. It's very important for me that I build a business that can be long lasting and has the regulatory oversight," he added.

The deal is somewhat reminiscent of the big swing that fellow online gambling company Amaya Inc. took last year, when it acquired privately held U.K. company Rational Group for $5-billion. However in that case, Amaya bought an entire company, one that was more than four times bigger than itself. Amaya also issued stock at a fat premium, whereas Intertain will be issuing about 7 million shares at roughly a $2 discount to their share price at the close of trading Wednesday, or $16.75. The price at close of trading Thursday was $17.30.

Shares in Intertain rose about 3 per cent on the deal, and have soared over 300 per cent since going public last year. The stock had been zipping higher for months in anticipation that a big deal was imminent.

Intertain was created in Feb 2014 when it purchased assets from Amaya. Amaya is also Intertain's biggest shareholder with a 5.8 per cent stake. Intertain, like Amaya has built its business by scooping up gambling assets. In July 2014, it acquired online bingo provider Mandalay Media for £45-million ($85.8-million). In December, it bought Dumarca Holdings Ltd., the Malta-based parent company of online casino player Vera&John Group for $126-million.

In December when the Autorité des marchés financiers (AMF), Quebec's securities regulator, announced it was conducting an investigation into trading activities around Amaya's blockbuster acquisition of Rational Group, Intertain's shares got hammered in the aftermath, shedding 26 per cent of their value in one trading session. Intertain then issued a statement saying that it is was "not aware of any connections" the investigation had to Intertain, and that it had "not been contacted by any security regulatory or law enforcement authority." The stock bounced back strongly in the interim.

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