March 23, 2015 / 9:58 AM / 2 years ago

Optimal Payments to buy e-wallet rival for $1.2 billion

3 Min Read

(Reuters) - London-listed Optimal Payments Plc is to buy the maker of the Skrill e-wallet, the biggest competitor to its Neteller business, for an enterprise value of about 1.1 billion euros ($1.2 billion), it said on Monday.

Optimal said the deal would expand its online payment and digital wallet services and reduce dependence on a few large customers, including its biggest in the gaming market.

Skrill Group, one of the largest pre-paid online voucher providers in Europe with its paysafecard brand, reported a core profit of $89 million in the year ended September.

"The U.S. (gaming) market, in particular, is just reopening and re-evolving," Chief Executive Joel Leonoff told Reuters.

"Ultimately we're looking at states like Pennsylvania and California to come online and this (deal) certainly establishes us as a very relevant supplier to the industry."

States such as New Jersey, Nevada and Delaware have approved internet gambling as a way to boost tax revenue at a time when earnings from land-based casinos have flat-lined.

Strong growth at Neteller has boosted Optimal's results over the past year. North America accounted for 27 percent of revenue in the year ended Dec. 31.

"(The deal) brings a major competitor on board, sharply reduces the exposure to Asia and brings credible venture capitalist investors onto the share register," Numis analyst Ivor Jones wrote in a note.

Jones raised his price target on Optimal's stock to 900 pence from 700 pence.

Trading in shares in Optimal were suspended following the announcement, having closed at 418.75 pence on Friday, vauing the company at 674 million pounds ($1 billion).

The shares are currently listed on London's junior AIM market but Optimal said it would seek a main market listing and inclusion in the FTSE-250 Midcap Index as soon as possible after completion of the deal, which constitutes a reverse takeover.

Under the deal Optimal is buying Sentinel Topco Ltd and its units, known as Skrill Group, from Sentinel Group Holdings, ultimately owned by funds managed by private equity firm CVC Capital, Investcorp Technology Partners and other shareholders.

Optimal will pay 720 million euros in cash and issue 37.5 million new shares to the owners of Skrill, valued at 135 million euros, giving Sentinel Group Holdings a 7.9 percent stake in the enlarged firm, the company said.

Including net debt at Skrill of 256 million euros, Optimal said the total price being paid for Skrill is 1.1 billion euros.

Optimal said it would fund the deal through cash, new debt facilities and a fully underwritten rights issue for about 451 million pounds ($672 million).

The deal, which is expected to close by the third quarter of 2015, will add to earnings per share in the first fiscal year of ownership.

($1 = 0.6704 pounds)

($1 = 0.9201 euros)

Reporting by Esha Vaish in Bengaluru; Editing by Greg Mahlich

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