After years of market rumours, the online gaming group Betfair has finally decided to lay its cards on the table and gamble on a listing in London.
The Hammersmith-based group yesterday announced its intention to list on the London Stock Exchange in a move described by co-founder Edward Wray as "an important landmark" in its history.
"Becoming a publicly listed company will provide Betfair with the heightened profile and enhanced transparency that will help us cement our long-term relationships with customers, regulators and business partners around the world," he added.
Betfair has already had to scrap plans for an initial public offering in 2005, and will hope to avoid the turbulent start to life on the public markets suffered by another high-profile debut in July. Ocado saw its shares tumble almost 20 per cent in its first month.
Betfair is confident the company will avoid these pitfalls. Its chief executive, David Yu, said: "This is a very different float to Ocado and for very different reasons." Jeffrey Harwood, a gambling company analyst at Oriel Securities, agreed: "Betfair is a very successful company with strong growth prospects. These are the kind of markets where strong companies can list, just as long as they are not greedy."
Betfair emerged from an idea developed by the former professional gambler Andrew Black. He took his plan to launch a betting exchange to Mr Wray, a JP Morgan trader, in 1998. The site officially launched in June 2000, with its first market on The Oaks race. The pair own 24 per cent of the company.
The group's betting exchange revolutionised gambling as it removed the bookie, and matched punters directly with each other. It has grown to become the largest international online sports betting provider, with more than 3 million registered customers. Mr Yu said: "For 10 years, Betfair has delivered sustained revenue growth and continued profitability, and this success, along with our debt-free balance sheet, underpins our confidence to continue investing in the many opportunities we see before us for the long-term success of the business."
The listing is not designed to raise money, and no new shares will be issued. The company has 14 major investors holding 75 per cent of the shares, who have pledged to sell 10 per cent of the group into the public markets. The issue is yet to be priced, but analysts expect it to value Betfair at about £1.5bn, putting it in the FTSE 250 index.
Mr Yu said: "We want the flexibility of being a public company. We are not private-equity backed, we have no debt and we don't need to raise capital."
This brings to an end years of speculation about the company's plans to join the public markets. Mr Yu said: "It has been rumoured for as long as I've been here. We've always had it under review as a possible option." He joined the company in 2001.
Betfair is partly keen to float as part of the "development of its international operations". It believes that the move will raise its profile abroad at a time when, as Mr Yu said, "state monopolies in Europe are coming under pressure and we have incredible momentum in the US".
He added that in some US states the gambling laws are more onerous if the company is private. It already owns Betfair US, which has a horse racing- betting and television broadcasting business, and a 50 per cent holding in the joint venture Betfair Australia. There are also licensed operations in Austria, Germany, Malta and Italy.
As it revealed the news yesterday, it reported that revenues in the year to the end of April had risen by 13 per cent to £340.9m, although profits tumbled from £47.5m to £17.8m. The group has no debt on its balance sheet and cash reserves of £150.9m.
In the pitch to potential investors, Betfair said its betting exchange system – which processed more than 5 million transactions per day on average in its last financial year – had "transformed the sports betting market". It added that the online betting market was forecast to hit $32.6bn in 2012, according to H2 Gambling Capital.
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"Bert" Black came up with the ground-breaking idea for a betting exchange while working in IT at the intelligence centre GCHQ.
His previous jobs had included being a golf caddie, a stock-market trader, and a full-time professional gambler, which is where the seeds of Betfair were first planted. Mr Black, whose grandfather was Sir Cyril Black, an MP and campaigner against gambling, had previously developed models to bet on football, golf and bridge.
He said Betfair's system grew out of having "plenty of spare time" during his work at the Ministry of Defence. He took the idea to match gamblers directly to Edward Wray in 1998. "It's very simple: Betfair is a cross-section of taking stock exchange technology to the gambling market using the internet," he said.
Mr Wray spent eight years at JP Morgan, latterly as a vice-president in the debt capital markets and derivatives arm of the business. The Oxford graduate met Mr Black at a drinks party and said he did not need much persuading that the business idea would take off. "Betfair is just like a stock market, but more fun," Mr Wray told Bloomberg. "Now I can't imagine doing anything else."
The bridge fan was named the company's inaugural chief executive until 2003. He then moved to Australia to oversee the launch of its joint venture in the country. He moved back to the UK and took over as chairman in 2006. He owns 11 racehorses.
Mr Yu joined Betfair just a year after it launched as chief technology officer. In that role he oversaw the overhaul of the group's technical infrastructure after the merger with Flutter in 2002.
The American then moved to the role of chief operating officer before succeeding Stephen Hill as chief executive in 2006. Mr Hill left after the group shelved plans for a flotation. Mr Yu had arrived from Alta Vista where he was vice-president of engineering for its e-commerce and international divisions. The Stanford University and Berkeley graduate has spent 20 years working in technology.Reuse content