Tom Waterhouse plays the odds with $100 million sale

Tom Waterhouse apparently netted more than $100 million from his eponymous gambling firm?–?but only a small sliver of that price will make it into the ubiquitous bookie’s bank account.

Waterhouse conducted a lengthy sale process, with some of the world’s largest gambling businesses?–?including Ladbrokes and BWin.Party.Digital (the owner of Party Poker)?–?kicking the tyres in a data room. Waterhouse was reported as seeking a valuation of $200 million for the business; in March the figure was as high as $500 million. In the end, he got $34 million cash from British giant William Hill and a potential “earn-out” of up to $70 million.

Earn-outs are a convenient way for acquirers to pick up an asset with minimal risk?–?the earn-out is only paid if certain (usually lofty) profit targets are met. In Waterhouse’s case, the business will need to generate $30 million in profit by 2015. Given Waterhouse is rumoured to have lost around $15 million last year, there is more chance of Fine Cotton winning the 2013 Melbourne Cup than Tom Waterhouse collecting the $70 million. That said, as advertising spending is wound back and synergies achieved, profitability should improve markedly.

What about the $34 million in cash that most media outlets have reported Waterhouse will collect? Waterhouse isn’t the only shareholder in the business?—?according to BRW, Tom owns around 25% of (ASIC searches provide little detail on the actual ownership levels). And there’s the issue of the equity already invested by shareholders (which reduced the $34 million windfall).

How do we work out how much cash the shareholders have stumped up? It’s hard to know specifics, as unlike a public company (or large private company), Waterhouse hasn’t disclosed any financial information to ASIC. However, The Wall Street Journal reports Waterhouse generated revenue of $28 million in 2013 and around $12 million in 2012.

However, Waterhouse employs around 80 staff and is understood to be spending a very significant amount on advertising annually (speculation has ranged between $20-45 million in 2013). While the specifics aren’t known, investment by the Waterhouse family and other shareholders would appear to be upwards of $20 million.

Crikey asked Waterhouse for specific financial information but a spokesperson was unable to disclose any confidential data.

But if that’s the case, the $34 million cash price and $6 million debt assumption will leave shareholders with somewhere between zero and $20 million. Waterhouse’s personal windfall could be around $5 million?—?or possibly less.

So why sell? A Waterhouse spokesman claimed in March that the business received takeover offers on a weekly basis. The most logical explanation is that Waterhouse sold not because he was offered a fortune, but because the cash was running out. As Waterhouse himself noted earlier this year:

“What do I need to sell it for? I wouldn’t want to change my lifestyle. If I had the choice of lying on the beach or being a bookie, I’d be a bookie.”

Being a bookie, in a terribly competitive online market, has made Waterhouse a very famous and moderately rich man. But he’s a long way from unlocking all that potential market value.

This article first appeared on Crikey.


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