Full Tilt and PokerStars boast 85 million registered players. For FY13, the online poker sites generated $1.1 billion in revenue and EBITDA of about $473 million. Amaya paid $4.9 billion for them, or about 11 times cash flow. Blackstone (BX) put up some money, along with a host of other entities providing all kinds of debt.
Let’s take a look at the valuation. Wynn Resorts (WYNN) trades for 12.2 times cash flow. Las Vegas Sands (LVS) trades for 12.6 times cash flow. Even MGM Resorts International (MGM), which is loaded with debt and a struggling operation, trades for 9.4 times cash flow. We can’t even value Caesars Entertainment (CZR) because it is cash flow negative.
But here’s the thing — these are all land-based resort and casinos. Hotels are a capital intensive business, with more irregular cash flow. Amaya is almost entirely an online operation without expensive capex to deal with.
Moreover, its strategy is clear: become the biggest public online gaming company, by gobbling up every premium asset it can. The CEO wants Amaya Gaming list on the New York Stock Exchange, which is only going to enhance interest.
Heck, I’m a poker guy and even I came to this story late. What happens when other investors realize what they are on to?
I believe this is the beginning of a great story for AMYGF. At some point down the line, after tons of states have permitted online gaming to collect the juicy tax revenues it will generate, Amaya probably will be taken out by one of the big casino operators above or private equity.
By then, I expect to be sitting on a tripler, if not more.
That’s exciting, but you do have to deal with the nitty gritty of actually buying Amaya Gaming. Here, you have two choices:
- The first is to buy it OTC, as I did, using the AMYGF symbol. Check with your broker, however. The stock is somewhat illiquid, although it has been more so in the past few weeks. It also is possible that even an OTC order could get filled in Canada, although that’s unlikely. In that case, you are going to pay a currency transaction fee to exchange the money into Canadian dollars or to settle up in U.S. dollars.
- You also can trade the stock directly on the Toronto exchange if your broker permits international stock trading. Again, you are going to pay both a trade commission and currency exchange fee, possibly in both directions.
I elected the OTC option because, while the spread was 12 cents, the currency conversion fee was 1% in both directions. No thanks.
As of this writing, Lawrence Meyers was long AMYGF. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets at @ichabodscranium.