WorldSpreads to sell its Irish operation for €11.3m

Irish spread betting firm WorldSpreads has confirmed the sale of its Irish division to management.

The MBO was first mooted in July when the Aim-listed WorldSpreads said it had ‘received an approach’ from their team in Dublin. In April WorldSpreads had offloaded its sports spread-betting business SportSpread, including the fixed odds operation Supreme Odds, to then sports head Fergus Rice.

Management of the Irish operation, led by co-founder and group chief operating officer Brian O’Neill, is believed to be paying about €11.3 million to acquire the business in a transaction backed by Dublin finance house Merrion Capital.

According to their most recent results from late June, in the year to March the Irish operation accounted for €7.97m of the total revenues of €14.9m, with the UK element of the business totalling €4.82m of the total and the international business accounting for the remaining €2.14m. The company said yesterday the pre-tax profit attributable to the Irish operation was €4.3m.

The deal will be subject to approval from the listed group’s shareholders and also from the Financial Regulator.

WorldSpreads informed the stock market at the beginning of July that it had received an approach from management for the Irish business, but said there was no certainly that this would lead to any offer being made.

The company, which was founded in Dublin in 2000 by chief executive Conor Foley and Mr O’Neill, is listed on both the Irish and London stock exchanges.

The Dublin operation at the centre of the deal focuses almost exclusively on the Irish market and, since October last year, is regulated by the Financial Regulator. It employs around 20 people.

The London division, which has been regulated by Britain’s Financial Services Authority since 2004, runs the business in both the UK and internationally, and accounts for the bulk of WorldSpreads’ revenue.

Outside of Britain and Ireland, WorldSpreads has operations in 12 other countries across Europe, including Russia, as well as in Malaysia and South Africa. About 40 employees are based in London.

It is understood that the existence of two separate regulatory regimes for the company’s business was one of the driving forces behind the move to sell the Dublin operation. Mr Foley will continue to run the London company.

The deal is expected to involve an upfront payment of around €8 million, with further cash payments on the first and second anniversaries of the transaction.

However, it is understood that any such payments are not likely to be dependent on the business’s performance following the handover.

The WorldSpreads group saw operating profits from continuing operations jump 40 per cent to €4.6 million last year – its second year as a listed company – from €3.2 million in the 12 months to the end of March 2008 after stripping out the costs of the IPO.

Revenues increased 39 per cent to €14.9 million over the same period.

WorldSpreads floated on London’s junior AIM market in August 2007.

The company took a Dublin listing in April 2008 on the IEX market.

The company sold its non-core sports betting division in April 2009 for a fee of up to €1.5 million to the management of that division, which was led by Fergus Rice.

Under the agreement the Irish Business has to stop trading under the WorldSpreads brand within five months of the acquisition, and must not compete in the United Kingdom, Spain, Hungary or Greece for a period of two years. In return WorldSpreads has agreed not to directly compete against the Irish Business in Ireland for a period of two years, not including potential white-label services. WorldSpreads said international expansion would remain a focus for the standalone London operation. Alongside Hungary, Spain and Greece, WorldSpreads also has operations or white labels recently opened up in Russia, Poland, the Czech Republic and Slovenia. It is understood that WorldSpreads is being advised by Collins Stewart and Flynn O’Driscoll, while Dillon Eustace is acting for the management team.

Thoughts: I can’t understand the logic of this move from WorldSpreads. Disposing of their sports spread betting operation was understandable given that they wanted to concentrate on the financial offering and that it was tying up resources but disposing of their Irish core operation!?

Why are they selling? Worldspreads’ management gave several reasons for the disposal. The company felt that the maintenance of two fully established and separately regulated trading desks in the same time zone and the duplication of cost and functions, had become onerous and inefficient. WorldSpreads stated that the sale would strengthen the group’s balance sheet and financial position and allow the group to inject further resources to expand in other international markets with a higher margin. Lastly, the management was concerned that a further weakening in the underlying Irish economy as a result of the global recession would negatively impact trading. However, the fact is also that they will lose their business in Ireland and the management of the Irish Business board wouldn’t have bought if they didn’t feel it wasn’t a good deal for them and naturally insiders are the best informed; probably they would use it to complement their newly acquired sports spread betting business from WorldSpreads which would turn them into a competitor. Time will tell. Shareholder Circular and Letter from Independent Directors published here.

Tags: Brian O'Neill, Dublin, Fergus Rice, ipo, Ireland, SportSpread, worldspreads

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