Amaya CEO Rafi Ashkenazi says that his focus on internal issues should be reduced in mid-2017. This will give him time to look more intently at the future of the business, with a special interest in acquisitions.
Ashkenazi made the comments in an interview with Bloomberg earlier this week, shortly after Amaya issued its full year report for 2016.
“2017 will also be to a large extent the continuing transitional year for us, but probably from the second half of this year, I can be much more focused on finding ways to grow the company, not necessarily organically.”
Online poker decline highlights need for diversification
Globally, online poker remains in decline, despite hopes that more US states will regulate in 2017.
As a producer of Amaya revenues, poker now accounts for 73.2 percent of the total, down from 82.7 percent in 2015.
This is only to be expected as the new casino and sportsbook verticals grow. But in absolute terms, poker revenues have also declined. 2016 poker revenues of $846.1 million are down 4.6 percent on 2015.
While Ashkenazi has a strategic plan to grow poker, the trend makes it more important that Amaya diversifies.
Sports betting is potentially Amaya’s most lucrative business vertical. However, the company faces extremely competent and entrenched competition. And organic growth to reach a cost-efficient business scale will be extremely difficult to achieve.
Acquiring sports betting businesses also adds to poker
Ashkenazi told Bloomberg that Amaya is “very open to acquisitions generally,” adding that sports betting had the highest priority.
Most of the sports betting businesses that Amaya may find attractive also have their own online poker brands.
If Amaya’s possible deal with William Hill had gone ahead, the merged company would have had three major brands: PokerStars and Full Tilt on the Amaya platform, and William Hill Poker on the Playtech iPoker network.
More debt remains a problem for Amaya
Amaya has done well to pay down much of the debt it acquired when it bought PokerStars. But at the end of 2016 it still owed $2.5 billion.
In terms of financial leverage, Amaya’s net debt to earnings ratio of 4.4 is relatively high and will deter any major acquisition. A deal could still be done if the company issued more equity, but shareholders may find that less attractive.
The merger with William Hill would not have needed new debt or the issue of more shares. From that perspective alone it was an attractive option for Amaya to gain scale.
The deal was killed by one of William Hill’s major shareholders. But Ashkenazi doesn’t think there is no possibility of reviving it.
He told Bloomberg, “Sometimes companies need time to reflect before they reengage in discussions.”
Such a deal would be a major corporate move, and occupy much management time. Smaller deals may be less distracting.
Downsizing the deal doesn’t mean it’s not worth doing
The Kindred Group is now close to completing its deal to buy 32Red for $218 million. Deals of this size can be done quickly and efficiently, the trick is to find the right target company.
There are plenty of smaller poker and sports betting operators that might make a good strategic fit, including some in relatively new markets.
In September 2016, Indian casino and hospitality group Delta Corp paid $27 million for Adda52, India’s leading national online poker site.
India is a target market for Amaya. One way of learning the local market is to acquire a local company.
Ashkenazi could follow the example of Kindred CEO Henrik Tjärnström. He has grown his company’s share price by around 400 percent in five years, mixing organic growth with smaller strategic acquisitions.
Whatever strategy Amaya chooses to adopt, Rafi Ashkenazi can expect the next few years to be just as busy as the last.