REG - XLMedia PLC - Divestment of Europe and Canada assets

XLMediaAnnouncement

21/03/2024 11:00

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RNS Number : 8011H  XLMedia PLC  21 March 2024

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as amended by The Market Abuse (Amendment) (EU Exit)
Regulations 2019. Upon the publication of this announcement via the Regulatory
Information Service, this inside information is now considered to be in the
public domain.

 

21 March 2024

 

XLMedia plc

("XLMedia" or the "Group" or the "Company")

 

Divestment of Europe and Canada assets

 

Binding agreement to sell Europe and Canada assets for a total consideration
up to $42.5 million

 

 

XLMedia (AIM: XLM), a leading global digital media company that manages a
portfolio of premium brands with an emphasis on Sports and Gaming in regulated
markets, announces that it has entered into a binding agreement for the sale
of its Europe and Canada sports betting and gaming assets (the "Assets") to
Gambling.com Group Limited ("GAMB", the "Purchaser") for a total
consideration of up to $42.5 million including a fixed sum of $37.5 million
plus a potential earnout of up to $5.0 million (the "Transaction").

 

Key Highlights

 

Following the announcement on 15 December 2023 that the Company had been
exploring the opportunity to create shareholder value through further asset
sales, the Company has now agreed a sale of its Europe and Canada assets with
GAMB.

 

Total consideration for the Transaction is up to $42.5 million, with fixed
consideration of $37.5 million ("Fixed Consideration"). In addition, the
Transaction provides earnout consideration of up to a further $5.0 million
based on revenue performance ("Earnout Consideration").

 

The Revenue and Adjusted EBITDA(1) attributable to the Assets for the year
ended 31 December 2023 is estimated to be $21.4 million and $6.6 million
respectively.

 

Based on the expected Adjusted EBITDA and Revenue for the year ended 31
December 2023 ("FY23"), as announced on 8 February 2024, the total
consideration of $42.5 million represents approximately:

 

·    3.5 times total expected Adjusted EBITDA of c$12.0 million for the
Group; and

 

·    A multiple of 6.4 times estimated Adjusted EBITDA of $6.6 million
for the Assets.

 

In addition, the total consideration represents approximately 200% of the
Group's market capitalisation as at 20 March 2024.

 

Following the completion of the Transaction, the Group will incur transition
costs principally for the migration of technology, for a period of six
months.  The Group will retain cash, debtors and liabilities at the point of
completion.

 

The Group intends to use the proceeds of the Transaction to cover asset
transition costs, pay the final deferred US acquisition payment and settle
outstanding tax provisions and provide working capital to support the North
America business while returning cash to shareholders.

 

The Transaction will allow the Group to focus on delivering value for
shareholders from its North America business which remains well positioned to
drive revenues across its North America Owned and Operated ("O&O") and
Media Partnership Business ("MPB") businesses in existing US regulated states
and new states when they legalise online sports betting.

 

 (1) Adjusted EBITDA is defined as the operating profit after adding back
depreciation, amortization, impairment, share based payments, exceptional
minimum guarantee cost, restructuring costs and aborted deal related costs.

 

 

Commenting on the Transaction, Marcus Rich, Chair of XLMedia, said:

 

"The Board believes the sale of these assets, which is approximately two times
the current market capitalisation of the whole company, is an excellent
outcome for XLMedia and its shareholders.  Importantly, this transaction will
allow the Company to clear legacy liabilities, provide working capital and
return cash to shareholders."

 

 

1.    INTRODUCTION

 

The Assets that are the subject of the Transaction include the following:
Freebets.com, WhichBingo.co.uk, Nettikasinot.com and Vedonlyonti.com, together
with smaller Europe and Canada sites. The Assets do not include XLMedia's
North America Owned and Operated and Media Partnership Business, which
represented approximately 55% of the expected Group revenues in FY23.

 

The Fixed Consideration of $37.5 million is payable in cash in three
installments as follows:

·    the first installment of $20.0 million being payable on the
completion anticipated to be on 1 April 2024;

·    the second installment of $10.0 million on the six-month anniversary
of closing; and

·    the final installment of $7.5 million together with any Earnout
Consideration (up to a maximum of $5.0 million) on the one-year anniversary of
completion.

 

The Transaction is completed on a cash-free, debt-free basis and implies a
multiple of 6.4 times estimated FY23 proforma Adjusted EBITDA attributable to
the Assets.

 

 

2. BACKGROUND TO AND RATIONALE FOR THE DIVESTMENT

 

Since implementing its revised strategic direction in recent years, XLMedia
has focused the Group on Sports and Gaming in regulated markets, continuing to
pursue a strategy of building a North America business while rebuilding the
Europe Sports and Gaming businesses and disposing of non-core assets.

 

·    XLMedia launched its North America Sports market presence with its
first US acquisition in 2020 followed by two further acquisitions in 2021.

·    2022 saw the Group continue its journey to evolve from a Europe
Gaming-led business to a North American Sports-led business. North America
Sports represented 65% of revenue in 2022.

·    2023 saw the premium Europe Sports and Gaming assets return to growth
while the North America business continued to add new media partners which
expanded its portfolio.

 

The Board confirms it had been in discussions with potential acquirors
regarding the possibility of a sale of the whole Company, but it was clear
while there was demand for the assets, given the prevailing share price, a
sale of the whole Company was unlikely to create the most value for
shareholders.

 

In December 2023, the Board stated it was exploring the opportunity to create
shareholder value through possible asset sales and had some early discussions
with potential purchasers, albeit no sale was completed at the time.

 

 

3. USES OF PROCEEDS AND FINANCIAL BENEFITS TO THE GROUP OF THE DIVESTMENT

 

In FY23, the Assets are expected to have contributed unaudited Revenue of
$21.4 million and Adjusted EBITDA of $6.6 million respectively. As of 31
December 2023, the Assets had an unaudited balance sheet valuation of
approximately $15.4 million.

 

In FY22, the Assets are estimated to have contributed Revenue of $22.1 million
and Adjusted EBITDA of $7.0 million respectively. As of 31 December 2022, the
Assets had an audited balance sheet valuation of approximately $25.9 million.
This valuation included three of the Group's Europe Gaming domains and
associated websites, Casino.se, Casino.gr, and Casino.pt which were sold in
July 2023 for approximately $4.0 million.

 

The net proceeds from the Fixed Consideration are expected to be approximately
$35.0 million at completion after relevant adjustments including estimated
transaction costs, settlement of transition costs and reorganisation costs
("Net Cash Proceeds").

 

The Board intends to use the Net Cash Proceeds to pay the final deferred
acquisition payment of $4.0 million due in 2024, provide working capital for
the North America business and settle outstanding tax provisions while
returning significant cash to shareholders.

 

 

4. UPDATE ON RETAINED GROUP AND FUTURE STRATEGY

 

Following completion, the Group will be reorganised to support the North
America business (the "Business").

 

The Group's strategy for North America remains to expand the Sports footprint,
deepening audience relationships and diversifying revenue streams with the
goal of more predictable, stable income. Additionally, the Business will seek
to drive Gaming in select markets through quality content and engaging
consumer features to capitalise on the high-margin vertical.

 

The near-term focus will be to continue to drive organic revenue growth while
improving margins and generating revenues. The Group does not have any current
plans for acquisition in North America.

 

XLMedia's Board will continue to execute the delivery of this strategy whilst
continually evaluating ways to maximise shareholder value.

 

 

5. DETAILS OF THE TRANSACTION AND PURCHASE AGREEMENT

 

The Company and XLMedia Publishing Limited (together the "Sellers"), have
entered into a binding Asset Purchase Agreement (the "APA") with the Purchaser
in relation to the Assets.

 

Pursuant to the terms of the APA, the Sellers are to sell the Assets, which
comprise of a portfolio of domains and certain contracts, intellectual
property rights and operator accounts required for the use and operation of
those domains.

 

Completion of the APA is in all respects conditional upon both (1) no material
adverse change occurring in the operation of the Assets during the period
between signing and completion of the APA and (2) other usual completion
conditions.

 

The Fixed Consideration of $37.5 million is payable in cash in three
installments as follows:

·    the first installment of $20.0 million being payable on the
completion anticipated to be on 1 April 2024;

·    the second installment of $10.0 million on the six-month anniversary
of closing; and

·    the final installment of $7.5 million together with any Earnout
Consideration (up to a maximum of $5.0 million) on the one-year anniversary of
completion.

 

The Company will give customary seller fundamental and business warranties and
provide certain indemnity protection to the Purchaser which are all subject to
financial caps.

 

 

For further information, please contact:

 XLMedia plc                                               ir@xlmedia.com

 David King, Chief Executive Officer                       via Vigo Consulting

 www.xlmedia.com (http://www.xlmedia.com/)

 Vigo Consulting                                           Tel: 020 7390 0233

 Jeremy Garcia / Fiona Hetherington / Kendall Hill

 www.vigoconsulting.com (http://www.vigoconsulting.com/)

 Cavendish Capital Markets Limited (Nomad and Broker)      Tel: 020 7220 0500

 Giles Balleny / Callum Davidson

 www.cavendish.com (http://www.cavendish.com/)

 

About XLMedia

 

XLMedia (AIM: XLM) is a leading global digital media company that creates
compelling content for highly engaged audiences and connects them to relevant
advertisers.

 

The Group manages a portfolio of premium brands with a primary emphasis on
Sports and Gaming in regulated markets. XLMedia brands are designed to reach
passionate people with the right content at the right time.

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