ACQUISITION OF THE SPIN PALACE GROUP AND SUSPENSION OF TRADING ON AIM
04 May 2006
FAIRGROUND GAMING HOLDINGS PLC
(“Fairground Gaming” or “the Company”)
Acquisition of The Spin Palace Group and suspension of trading on AIM
The Directors of Fairground Gaming (“Directors”) are pleased to announce that the Company has entered into a conditional purchase agreement to acquire all of the online gaming businesses and subsidiaries, which collectively form The Spin Palace Group (“the Acquisition”) from Roundit Limited, (“the Vendor”), for a maximum consideration of US$66m.
The Acquisition is the first by Fairground Gaming since admission to AIM in October 2005, is in line with the Company’s strategy and is conditional on re-admission to trading of the enlarged issued share capital;
The Spin Palace Group comprises two recently combined businesses, Spin Palace and Piggs Casino, and is a licensed online casino and poker group offering over 200 different games to a global customer base;
Core domains include Spin Palace, Ruby Fortune and Piggs Casino;
The technology platform of the Acquisition is underpinned by Microgaming considered by the Directors to be the leading provider of software to online casinos;
Scope for further integration and exploitation of new products;
Existing management teams and staff to remain with the enlarged group on completion of the Acquisition;
Acquisition incorporates a marketing business and scalable call centre to which the Vendor previously outsourced these functions as well as an award-winning affiliate programme;
Initial consideration of approximately US$46m, consisting of US$10m cash payment from existing Fairground Gaming resources with the remainder being satisfied through the issue of ordinary shares in Fairground Gaming (“Ordinary Shares”) and warrants over Ordinary Shares (“Warrants”) in Fairground Gaming;
Further earnout consideration payable of up to US$20m, dependent upon the EBITDA of The Spin Palace Group for the year to 31 December 2006; and
The Acquisition constitutes a reverse takeover for the purposes of the AIM Rules and accordingly the Directors have requested that Fairground Gaming’s shares be suspended from trading on AIM with immediate effect until such time as an AIM admission document is published.
Commenting on the proposed Acquisition, Evan Hoff, Chief Executive of Fairground Gaming, said: “The Spin Palace Group will be the cornerstone in the execution of Fairground Gaming’s consolidation strategy. Both Spin Palace and Piggs Casino are well managed and cash generative businesses and, combined, we believe they have the potential to be scaled upwards to enhance future revenues of the Company. We look forward to working with management in growing the business and seeking out complementary acquisitions that will assist us in achieving further scale and product and geographic diversification. We look forward to providing further information to investors in due course.”
The acquisition of The Spin Palace Group, which is conditional on readmission of the enlarged issued share capital of Fairground Gaming to AIM, is in line with the Company’s stated strategy to take advantage of the trend for consolidation within the online gaming sector in order to build a diversified portfolio of online gaming businesses through a combination of strategic acquisitions accompanied by subsequent organic growth.
The Spin Palace Group, first incorporated in 2001, is a licensed online casino and poker group that possesses a global and diversified customer base. The Spin Palace Group offers to its customers over 200 different online casino and poker games. The Acquisition brings to Fairground a marketing and scalable call centre capability as well as an award-winning affiliate programme. The principal online gaming sites of The Spin Palace Group are Spin Palace, Ruby Fortune and Piggs Casino.
The technology software to operate and develop the online casino and poker games is supplied through an agreement with Microgaming.
The Acquisition constitutes a reverse takeover of Fairground Gaming under the AIM Rules and therefore, in accordance with these rules, the Directors have requested that the Ordinary Shares be suspended from trading on AIM with immediate effect until such time as the Company publishes an AIM admission document. It is anticipated that the AIM admission document, which will include a notice convening an extraordinary general meeting (“EGM”) of shareholders at which resolutions (“Resolutions”) will be proposed, inter alia, to approve, the Acquisition, will be published during May 2006.
Upon the Resolutions being passed at the EGM (or any adjournment thereof). Fairground Gaming intends to apply for the enlarged issued and to be issued share capital to be admitted to trading on AIM subject to certain conditions being satisfied. Dealings on AIM in the enlarged issued share capital should commence as soon as practicable following the conclusion of the EGM. If the conditions of the Acquisition are not satisfied, dealings in the existing Ordinary Shares will resume trading on AIM as soon as practicable thereafter.
Terms of the Acquisition
Fairground Gaming, through its wholly owned subsidiary, FGH Acquisitions (Spin) Limited, has conditionally agreed to acquire from the Vendor all of its online gaming businesses and subsidiaries. The Acquisition has an effective date of 1st January 2006, which is the date from which all revenues and costs, assets and liabilities will accrue to Fairground Gaming. In accordance with normal accounting practice however, the profit and loss accounts of the enlarged group will only recognise income and expenditure of The Spin Palace Group from the date of completion.
The maximum consideration payable to the Vendor under the terms of the agreement is US$66 million. If the earnout target of US$9.8 million of earnings before interest, tax, depreciation and amortisation (“EBITDA”) of The Spin Palace Group for the year ending 31 December 2006 is achieved, the consideration paid would represent an overall multiple of 6.7 times EBITDA.
The consideration is to be satisfied as follows:
an initial consideration of approximately US$46 million equating to 8 times the Spin Palace Group’s audited EBITDA for the year ended 31 December 2005 to be satisfied as to US$10 million in cash from existing resources with the remainder being satisfied through the issue of Ordinary Shares and Warrants; and
a deferred consideration of up to US$20 million calculated on a sliding multiple applied to The Spin Palace Group’s audited EBITDA for the year ending 31 December 2006 to be satisfied as to not less than 25 per cent. but not more than 50 per cent. in cash with the remainder to be satisfied by either Ordinary Shares, Warrants and debt or a combination thereof.
Ordinary Shares to be issued to the Vendor as part of the initial consideration will be issued at 75 pence per share and will be subject to lock-up and orderly market arrangements. The Ordinary Shares to be issued to the Vendor as part of the deferred consideration will be issued at a price per share equivalent to the lesser of the average of the closing mid-market price Ordinary Shares from October to December 2006 and the average of the closing mid-market price of the Ordinary Shares in the 7 trading days prior to 31 December 2006 and will also be subject to lock-up and orderly market arrangements.
The terms of the Acquisition require that the issue of Ordinary Shares to the Vendor shall not result in the Vendor’s aggregate shareholding in Fairground Gaming exceeding 29.9 per cent. of Fairground Gaming’s issued ordinary share capital from time to time (the “Cap”). If the issue of Ordinary Shares pursuant to the initial consideration or the deferred consideration would result in the Vendor’s shareholding exceeding the Cap, then the Vendor shall receive in lieu thereof such number of Warrants as would equal the number of Ordinary Shares that the Vendor is entitled to receive. The exercise price for the Warrants is nil and all the Ordinary Shares shall be issued fully paid. The Warrants are therefore exercisable by the Vendor as the issued share capital of Fairground Gaming is enlarged following further acquisitions and/or fundraisings.
Background to the Transaction
The stated strategy of the Company is to take advantage of the trend for consolidation within the online gaming sector in order to build a portfolio of online gaming businesses. The online gaming sector is highly fragmented where only the major operators enjoy significant scale or brand recognition. Against this background, the Directors believe that the operating model of many companies within the online gaming sector is highly scalable providing opportunities for greater efficiency cost savings upon consolidation.
The Directors consider that the Acquisition represents the first step in implementing the Company’s strategy. Through the operation of online casinos and online poker, the Acquisition generates two distinct lines of revenue and sources of profit. The Spin Palace Group has achieved levels of organic revenue growth comparable to other online gaming competitors and has implemented high quality operating and management information systems.
The Spin Palace Group has a suite of management information systems, which the Directors believe will help facilitate the integration of the Acquisition with other future acquisitions.
As well as being fragmented, the online gaming sector is currently recording substantial annual rates of growth. As the sector matures, the quality of the brands offered by operators as well as their presence in the marketplace will be crucial in determining those, which are successful. The Spin Palace Group possesses several key brands through its online domains including Spin Palace Ruby Fortune and Piggs Casino, highlighting the attractiveness of the Acquisition to the Company.
Information on The Spin Palace Group
The Spin Palace Group is a licensed online casino and poker group, which possesses a global and diversified customer base. Unaudited management accounts demonstrate that in 2004, The Spin Palace Group recorded an unaudited Net Win (the difference between amounts wagered by active players and the amounts paid out to active players minus bonuses paid out) of US$19.2 million in 2004 rising to US$29.9 million in 2005. The Spin Palace Group had approximately 9,300 active casino players (players who are playing for money) in March 2006 compared to 3,380 active players in March 2004 representing an annual compound growth rate of 65%. The Spin Palace Group had approximately 2,100 active poker players (players who are playing for money) in March 2006 compared to less than 500 in March 2004 representing an annual compound growth rate of 104%.
Approximately 97% of the Net Win revenue in 2005 was generated through the online casino activities, which includes slots, roulette, baccarat and blackjack. Net Win revenues from Poker accounted for the remainder.
The Spin Palace Group offers its customers (who may use either a download or a flash version of the software) over 200 different online casino and poker games. The number of games offered by The Spin Palace Group is a key strength, helping to maintain the number of active players using the websites.
The Spin Palace Group is also a member of the Microgaming Prima Poker network, which provides a network of players with the ability to play poker online against other poker players (www.primapoker.com).
The Directors of Fairground Gaming consider that the technological and operational infrastructure, which underpins the operations of The Spin Palace Group is highly scalable, thus allowing for significant economies of scale as Fairground Gaming seeks to achieve both organic growth and growth through strategic acquisitions. The Company also intends to make effective use of cross-marketing opportunities between the online gaming sites.
The Spin Palace Group collectively comprises two separate businesses, Spin Palace and Piggs Casino, which are both licensed by the Kahnawake Gaming Commission in Canada’s independent Mohawk Territory of Kahnawake.
The latest management accounts of The Spin Palace Group indicate an unaudited Net Win of US$9.7 million in Q1 2006, against US$7.8 million in Q4 2005, representing quarter on quarter growth of 24%. Casino Net Win was US$9.4m (US$7.6m in Q4 2005) and poker Net Win was US$0.34 million (US$0.28 million in Q4 2005), representing growth of 24% and 21% respectively. Overall, Net Win in Q1 2006 was 33% ahead of Net Win in Q1 2005, comprising growth in casino Net Win of 30% and poker Net Win of 162%.
The primary domains of Spin Palace are detailed below:
· Spin Palace Casino (www.spinpalace.com)
· Ruby Fortune Casino (www.rubyfortune.com)
· Spin Palace Poker (www.spinpalacepoker.com)
The flagship brand of Spin Palace is the Spin Palace Casino, which offers both online casino and poker gaming comprising of over 173 games, including 19 progressive jackpots.
The secondary brand of Spin Palace is the Ruby Fortune Casino, which amongst other objectives, is designed to appeal to the female customer segment of the online gaming sector.
The Spin Palace Casino was awarded “Best New Casino” in 2002 from Casinomeister, an independent body recognised in the online gaming industry as an advocate for players. In 2002, it also won several awards from “Gambling Online Magazine” based on readers’ polls. Ruby Fortune Casino was also given an honourable mention by the “Gambling Online Magazine” in the 2005 award for top new online casino.
In addition, Spin Palace utilises its own common affiliate programme, called Wagershare (www.wagershare.com), which has received several awards including the “Casino Affiliate Program of the Year” from Casinomeister in 2003 and 2004.
Spin Palace is accredited by the self-regulating industry body, eCogra (“E-Commerce and Online Gaming Regulation Assurance”) and has been awarded eCogra’s players seal of approval.
The primary domains of Piggs Casino are detailed below:
The Piggs Casino (www.piggscasino.com)
Jackpots In A Flash Casino (www.jackpotsinaflash.com)
Poker333 Poker (www.poker333.com)
The flagship brand of Piggs Casino is The Piggs Casino, which offers both online casino and poker gaming currently comprising 179 games, including 19 progressive jackpots.
The secondary brands of Piggs Casino being Jackpots In A Flash, Mummysgold Casino and Poker333 were launched in order to promote cross marketing between the online gaming websites, a direct response to the tendency for customers to switch between websites.
Piggs Casino is accredited by the self-regulating industry body, eCogra (“E-Commerce and Online Gaming Regulation Assurance”) and has been awarded eCogra’s players seal of approval.
Fairground Gaming +44 (0)1624 616061
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ABOUT FAIRGROUND GAMING
Fairground Gaming (www.fairgroundgaming.com) was admitted to AIM on 4 October 2005 with the intention of building a broad-based, diversified gaming portfolio by acquisition and thereafter by organic growth. The company will achieve this by:
· acting as a consolidator of the fragmented online gaming sector;
· using the extensive sector and technology contacts of its directors to acquire majority interests in a portfolio of synergistic, cash-generative online gaming businesses; and
· targeting smaller companies in areas such as online casinos, poker, bingo and skill-based gaming;