CONTAGIOUS GAMING TO ACQUIRE ESTABLISHED UK ONLINE BINGO PROVIDER CHELBIS
NOT FOR DISSEMINATION IN THE US OR THROUGH US NEWSWIRE SERVICES
VANCOUVER, B.C., December 8, 2014 – Contagious Gaming Inc.(TSX-V: CNS) (“Contagious Gaming” or the “Company”) is pleased to announce that it has entered into an agreement to acquire all of the issued and outstanding securities of Chelbis Company Ltd. (“Chelbis”) (the “Acquisition”). The Purchase Price (described below) will be paid through a combination of common shares of Contagious Gaming (“Common Shares”) and cash, and will include deferred consideration tied to performance in respect of a meaningful portion of the Purchase Price. The cash portion of the Purchase Price will be funded with cash on hand.
Chelbis owns and operates well established and successful websites House of Bingo, Gone Bingo, and Harrys Bingo as well as bingo networks Best Bingo Network, Super Bingo Network and Fun Bingo Network. It also manages more than 14 white label bingo partner websites within its networks. Chelbis was established in Malta in 2007 and has since served over 3 million players with approximately 99% of revenues generated from the UK. Chelbis has handled over $31.6 million (£17.4 million) in net-win on a cash basis since 2011 and wagers of over $3.4 billion (£1.9 billion) since inception. Chelbis’ offering caters to all player segments, including value-orientated and casual players, but its focus is on the high roller player base. Its high roller players have a player lifetime of over 4 years and account for 50% of total deposits since inception. Chelbis utilizes Cozy Games Management Ltd.’s gaming software platform which provides its players with 71 online games and 46 mobile games.
Peter Glancy, CEO and director of the Company, commented: “The Acquisition of Chelbis is expected to be materially accretive, diversifying our revenue streams, providing consistent cash flow and allowing us to capitalize on synergies which should ultimately increase margins and reduce costs.” He added: “We look forward to completing the Acquisition of Chelbis and welcoming them as Contagious Gaming shareholders.”
Madhu Avalur, CEO of Chelbis, commented “We look forward to completing the acquisition and joining the Contagious Gaming team where we will be able to leverage our resources and create synergies to drive value for shareholders.”
Chelbis Company Ltd. (Malta) summary of audited* and Adjusted Financials for the fiscal year (“FY”) ending December 31, 2013 is as follows:
|(in $ thousands)||Audited*||Adjustments||Adjusted**|
|Taxes, Interest and Other||526||(443) 2||83|
|Depreciation & Amortization||67||67|
(1) Adjusted for the estimated impact of the go-forward IT, Fraud Prevention and CRM service contract which are expected to be entered into concurrently with the closing of the Acquisition
(2) Adjusted for expected Malta corporate tax refund for FY 2013
* The audited financial statements were denominated in British Pound Sterling (“GBP” or “£”) and for the purposes of this news release they were translated into Canadian dollars using foreign exchange rate of GBP 1.00 = $1.80.
** Please see below section “Non-IFRS Financial Measures” for definition of the above non-IFRS measures.
The purchase price for the Acquisition will be $4,050,000 plus earn-out consideration equal to 1x FY 2015 net income and 1x FY 2016 net income. It shall be paid as follows:
- Initial share consideration of Common Shares to be paid on closing of $2,790,000 at the Deemed Price of $0.80 per share or the Trading Price plus a Premium (as defined below);
- Total cash consideration of $1,260,000 is expected to be paid as follows:
- $720,000 in cash due on closing of the Acquisition;
- $270,000 in cash due at the later of December 31, 2015 or the date in which the Chelbis fiscal year 2015 corporate tax return is received (the “2015 Payment”); and
- $270,000 due six (6) months following the 2015 Payment;
- Earn out consideration to be calculated and paid as follows:
- Earn out payment equal to the consolidated net profit after taxes (“Net Profit”) for Chelbis for the period twelve (12) months ended December 31, 2015 payable at the discretion of Contagious Gaming in either cash payable sixty (60) days after the completion of the FY 2015 audited financial statements for Chelbis or Common Shares at the 10-day volume weighted average price (“VWAP”) of common shares trading on the TSX or the TSX Venture Exchange (the “TSX”) prior to the delivery of Chelbis audited financial statement for FY 2015 (the, “2015 Earn Out”); and,
- Earn out payment equal to the Net Profit for Chelbis for the period twelve (12) months ended December 31, 2016 payable at the discretion of Contagious Gaming in either cash payable sixty (60) days after the completion of the FY 2016 audited financial statements for Chelbis or Common Shares at the 10-day volume weighted average price (“VWAP”) of common shares trading on the TSX prior to the delivery of Chelbis audited financial statement for FY 2016 (the, “2016 Earn Out”) (the “Purchase Price”).
The Deemed Price per common share shall be: a) $0.80; or b) in the event that Common Shares are trading on the TSXV (the “TSXV Shares”) at a price less than $0.80 per Common Share, then the Deemed Price per Common Share shall be equal to: i) the prior trading day’s closing price of the TSXV Common Shares of the day of executing the definitive agreement (the “Trading Price”); plus ii) a premium equal to 50% of the difference in the Trading Price and $0.80 (the “Premium”).
Note: amounts translated from GBP to CAD and vice versa were translated using foreign exchange rate of GBP 1.00 = $1.80.
Chelbis is being acquired free of any long term debt and shall be delivered with unrestricted cash equal or exceeding $540,000 (£300,000). The Acquisition is subject to completion of customary due diligence, negotiation and settlement of a definitive agreement and approval of the TSX Venture Exchange.
Rational for Acquisition
- Significant synergies as a combined entity
- Ability to leverage Contagious Gaming’s software platform and library of content for deployment into Chelbis established network with turnkey player liquidity of over $3.4 billion (£1.9 billion) of wagers since inception
- Chelbis’ existing customer relationship management (“CRM”) infrastructure can be used to handle the Company’s requirements for Goal Time in a cost effective manner under the current cost structure
- Access to a dedicated team of approximately 90 employees in a low-cost jurisdiction, adding additional bandwidth which can be utilized by the Company; functions include: customer relationship management, fraud prevention, marketing, information technology, and accounting
- Attractive purchase price with a track record of revenues and cash flow
- Purchase price of $4,050,000 plus earn-out consideration of 1x FY 2015 Net Income and 1x FY 2016 Net Income
- FY 2013 Adjusted EBITDA of approximately $2.3 million and adjusted Net Income of approximately $2.2 million
- Chelbis to be delivered with unrestricted cash equal to or exceeding $540,000
- Aligned and experienced management team
- Chelbis founder and senior executive (the “Chelbis Executive”) is its current sole shareholder and will be aligned as a significant Contagious Gaming shareholder following the closing of the Acquisition
- The Chelbis Executive will be further incentivized through the earn-out consideration which is tied directly to the future performance of Chelbis
- The Chelbis Executive brings over 18 years of experience as an operator and investor of several gaming and other technology investments
Regulated Markets and Operations
Chelbis’ online activities operate within regulated jurisdictions pursuant to licenses issued by the UK Gambling Commission. Its player base is comprised entirely of customers within regulated jurisdictions, predominantly in the UK. The regulatory regime pursuant to which Chelbis operates is consistent with the Contagious Gaming model to ensure the integrity of gaming and marketing activity.
About Contagious Gaming
Contagious Gaming Inc. (TSX-V: CNS) is a rapidly emerging developer of unique and engaging software solutions for regulated gaming and lottery markets around the world. The Company is currently focused on deploying its first-to-market lottery-style sports betting platform in the United Kingdom and its proprietary digital instant lottery content in United States and other international jurisdictions. Contagious Gaming’s sports betting platform is the first sports betting system to allow players to chase a dynamic jackpot live during Premier League soccer matches. The Company is a first mover in the roll-out of digital instant lottery content in the United States. For more information on Contagious Gaming please visit www.contagiousgaming.ca.
Non-IFRS Financial Measures
The following non-IFRS definitions are used in this press release because management believes that they provide useful information regarding Chelbis’ ongoing operations. Readers are cautioned that the definitions are not recognized measures under IFRS, do not have standardized meanings prescribed by IFRS, and should not be construed to be alternatives to revenues and net loss and comprehensive loss for the period determined in accordance with IFRS or as indicators of performance, liquidity or cash flows. Our method of calculating these measures may differ from the method used by other entities and accordingly our measures may not be comparable to similarly titled measures used by other entities or in other jurisdictions.
- Adjusted Financial as defined by the Company means the Chelbis audited financial results for the fiscal year ending December 31, 2013 denominated in GBP and translated into Canadian dollars using foreign exchange rate of GBP 1.00 = $1.80, with adjustments for the estimated impact of the go-forward IT, Fraud Prevention and CRM contract expense and the expected Malta corporate tax refund for 2013. Management believes that Adjusted Financials is a useful measure because it provides information to management about the operating and financial performance of Chelbis and its ability to generate operating cash flow to fund future working capital needs, service outstanding debt and fund future capital expenditures.
- EBITDA as defined by the Company means earnings before interest and financing costs (net of interest income), income taxes, amortization, and depreciation. Management believes that EBITDA is a useful measure because it provides information to management about the operating and financial performance of Chelbis and its ability to generate operating cash flow to fund future working capital needs, service outstanding debt and fund future capital expenditures.
- Adjusted EBITDA as defined by the Company means earnings before interest and financing costs (net of interest income), income taxes, amortization, and depreciation with adjustments for the estimated impact of the go-forward IT, Fraud Prevention and CRM contract expense and the expected Malta corporate tax refund for 2013. Management believes that Adjusted EBITDA is a useful measure because it provides information to management about the operating and financial performance of Chelbis and its ability to generate operating cash flow to fund future working capital needs, service outstanding debt and fund future capital expenditures.
The intent of Adjusted Financials, EBITDA, and Adjusted EBITDA is to provide additional useful information to investors and analysts and the measure does not have any standardized meaning under IFRS. Adjusted Financials, EBITDA, and Adjusted EBITDA should therefore not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate Adjusted Financials, EBITDA, and Adjusted EBITDA differently.
For further information please contact:
Charles Shin, Chairman
Phone: (416) 669-3183
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Certain information in this news release is considered forward-looking within the meaning of certain securities laws and is subject to important risks, uncertainties and assumptions. This forward‐looking information includes, among other things, information with respect to the Company’s beliefs, plans, expectations, anticipations, estimates and intentions. The words “may”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, “target” and similar words and expressions are used to identify forward‐looking information. The forward-looking information in this news release describes the Company’s expectations as of the date of this news release.
The results or events anticipated or predicted in such forward-looking information may differ materially from actual results or events. Material factors which could cause actual results or events to differ materially from such forward-looking information include, among others, risks arising from general economic conditions and adverse industry events.
The Company cautions that the foregoing list of material factors is not exhaustive. When relying on the Company’s forward-looking information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company has assumed a certain progression, which may not be realized. It has also assumed that the material factors referred to in the previous paragraph will not cause such forward-looking information to differ materially from actual results or events. However, the list of these factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors.
THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS NEWS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD‐LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, IT DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME.