Adjarabet is a unanimous leader on the Georgian online gambling market and a successful start up on the Armenian market. After having commanded a 14% market share in just two years, the company has closed what we call the deal of the year with global brand Paddy Power Betfair, bringing 116 million euros to Georgia.
This could be the shortest story ever told by Forbes Georgia. Here’s the reason: Ebdita: 75 million. Profit multiplier: 9.
Don’t tell me you wouldn’t agree that in a low middle-income country with serious economic and political risks, these impressive figures are not enough to start and end the story of Adjarabet, a Georgian online gambling company that managed to raise 116 million euros from a very experienced and renowned global brand Paddy Power Betfair.
Paddy Power Betfair is a leading international sports betting and gaming operator and a constituent of the FTSE 100 index of the London Stock Exchange. The Irish company employs over 7,000 people from Los Angeles to Melbourne, via Dublin and London, and these people are linked by their competitiveness, agility, integrity and a relentless customer focus. Paddy Power Betfair runs some of the world’s most exciting online sports betting and gaming brands, powered by sophisticated in-house technology, innovative products and creative marketing and sporting partnerships.
In 2018 and early 2019, Paddy Power Betfair had only two cases of M&A. In July it completed the merger of its Betfair US business with daily fantasy sports operator FanDuel. To this day, PPB controls a 61 percent share of the new company, which will be known as the FanDuel Group, with existing FanDuel investors owning the remaining 39 percent.
In February 2019 the company expanded its reach into the Georgian gambling market acquiring a 51 percent share in the leading betting and gaming group Adjarabet.
“A top-notch global company, listed on London and Dublin stock exchanges concluded only two deals in its recent history, and one of them was with Adjarabet. This fact is self-explanatory,” says CEO of Adjarabet Archil Kakhidze.
Since 1998, the year Adjarabet was founded, the company proved to be the most successful, safe and innovative gaming portal in Georgia. It has firmly established itself as a leader on the Georgian market through its commitment to fast payouts and high quality customer service.
Adjarabet definitely gained momentum when it decided to open up for an international partnership in order to further its development goals.
“We got an excellent price,” Kakhidze tells Forbes Georgia. “Many developed companies in Eastern Europe can’t boast having such deals.”
There were several reasons that such a complex deal ended with a handshake.
Today Adjarabet is the only company in Georgia with a strong presence in the Caucasus. Both in Georgia and in Armenia, the company holds more than 10% of market share; employs 800 people, and is well developed technologically. Georgian and British professionals sit on its board, and it is the only onlinegambling company in Georgia in possession of an ISO certificate on quality management.
“We were so ready for the future ahead that the transaction ended in six months. And this was without any help from M&A advisers from outside, using only our internal resources. You have to agree it is a very short time for closing such a deal,” says Kakhidze.
I agree and he continues: “The post-transaction period will have many benefits for Georgia.”
I have to agree again: This deal has a real potential to be an icebreaker for Irish investments in Georgia.
Paddy Power Betfair knew very little about Georgia when it decided to invest 116 million euros in this country. What’s more, it decided it is worth paying 9 times multiplier. This reflects on three main points: First, Adjarabet is a very strong and valuable company in its own right. Second, Georgia as a country that was evaluated positively considering all the risks and benefits associated with doing business here. Third, the regulatory environment in Georgia is stable as it pertains to the online-gambling sector, which means that at this point, the market is open for long-term business planning.
“Another big advantage was Adjarabet’s diversified products covering mass demand and markets, including Armenia,” the CEO of Adjarabet notes.
Adjarabet entered the Armenian market two years ago. It is a company which has both 21 years of history on the Georgian market as the unquestionable leader and two years as a successful start up on Armenian market, breaking even and encompassing a 14% market share.
“This is an important factor,” says Kakhidze.
Perhaps even more important is the fact that this is not the first time Adjarabet has tried to diversify regionally. In 2013, there was one attempt to expand to Kazakhstan.
“Back then we were not ready for either matrix management or for joint operations. Kazakhstan wasn’t ready for online the platform either,” he explains.
Thanks to the ability of the company to learn from its mistakes and turn them into positive experiences, this time its business model for Armenia proved to be successful.
“This gave us confidence to seek the means and resources to diversify even further – to and beyond East Europe and Asia. Local resources were no longer enough. We needed partners in that,” Kakhidze says.
Paddy Power Betfair turned out to be the right partner. 2019 will reveal even more, since this will be the year they integrate the joint business.
This, as the CEO of Adjarabet explains, means that by the end of this year, Adjarabet will absorb all the benefits its large-scale partner can offer, including all the know-how and products – in short, everything that belongs to a global brand.
The next checkpoint will be after three years, when the founders have to decide whether to continue with this partnership or to end it by selling the rest of their shares to the global player.
“This depends on how the company develops,” says Kakhidze.
Competition on the online-gambling market in Georgia is tough, but Kakhidze believes that this deal, which is opening doors to Paddy Power Betfair on the local market, will bring stability.
“Georgia is like any other European country in this segment,” he says, referring to the fact that the top three largest players on the Georgian market are international – two of them are British and the other is Swedish. All three of these companies sit on the London Stock Exchange.
“This sector is clearly very successful. It has drawn very large European investments to the country,” says Kakhidze.
Still, Georgia is far from viewing this business free of stigma. It’s not Britain, for example, where betting on horse race is a social event in a pub rather than some illicit activity.
“The stigma used to be stronger in the past,” Kakhidze says. “With more tourists coming to visit Georgia, this business contributes more to the country’s economy.”
The figures tell the same story. Taxes paid by the gambling businesses into the budget in the last two years amount to H119.5 million (2017) and H136.5 million (2018) respectively.
Online gambling is a relatively new industry worldwide. But all the latest research from sources like MarketWatch anticipate that the global online gambling market will generate revenue of more than $74 billion by 2023. According to market assessments, the global online gambling market is mainly driven by an increase in per capita income and the cost-effectiveness of mobile applications that are also attracting new players on the global market.
“In the last years, technology-wise, we were developing along the lines that the world has been developing in this segment. This is one reason why Paddy Power Betfair easily saw us as their equals,” says Kakhidze.
The CEO of Adjarabet is quite experienced in spotting opportunities. Despite years of experience in betting and in the financial sectors, his voice changes when he remembers the closing of the transaction. Listening to him, one immediately realizes how much effort and energy has been poured into this deal, and that the notes of pride in CEO’s voice are totally justified.
“It was a very interesting process. The deal was closed right before the weekend. The stock markets were closing and only the next morning was the transaction finally announced. And then it started: One after another, all British and Irish business and gambling editions started to print stories about the deal. I was sitting back watching the markets and you could see how well Paddy Power Betfair’s shares were performing on the stock exchange. And the message of the global brand was that it had bought a very good company at a good price,” recalls Kakhidze.
The interview ends. We shake hands and I head down a corridor from a relatively modest office where I have taken up about an hour of the CEO’s time. Only one thing is on my mind: how essential the long-term vision for development is in business, and if played by experienced hands, how skyrocketing the benefits are that this card can rip off.
The rest is in the individual’s own risk and responsibility.
I would even bet on it.