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Paddy Power and Betfair eye £1.1bn merger amid launch of online gambling incubator

4 min read

26 August 2015

Former deputy editor

The launch of an incubator focused on online gambling startups has coincided with the news that bookmakers Paddy Power and Betfair are planning a possible merger to become a global giant.

The principle agreement between the two firms would create Paddy Power Betfair.

It’s defined by the pair as what would be “one of the world’s largest public online betting and gaming companies,” which is a result of the firms’ collective revenue hitting more than £1.1bn over the most recent financial year.

Describing “strategic logic” behind the decision, the companies would seek to use their similarities and differences to generate better returns for improved shareholder value and customer satisfaction.

Terms of the agreement would see Paddy Power shareholders secure a 52 per cent stake, with those from the Betfair camp securing the remaining 48 per cent.

Although the UK and Ireland would still be key markets for the firm, the merger would open up wider opportunities to scale into overseas territories – namely, Europe, the US and Australia.

“Paddy Power has delivered a very strong performance in the first half with net revenue up 25 per cent in constant currency and operating profit up 33 per cent,” said Andy McCue, Paddy Power’s CEO.

“Underlying operating profit was up 68 per cent excluding the impact of new taxes and product fees. While this performance was broadly based across all our online and retail divisions, Australia has been the standout with reported operating profit up 78 per cent.”

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Other proposals would see Paddy Power chairman Gary McGann named chairman of the overall group, while Betfair CEO Breon Corcoran would lead the new business. Paddy Power’s McCue, meanwhile, would become group COO, while Betfair CFO Alex Gersh would manage finances for the entire group.

Discussions are ongoing to adhere to due diligence, but the firms expect a further update in coming weeks.

“Betfair US continues to perform well, helped by the acquisition of HRTV and TVG’s subsequent access to additional premium horseracing content. Betfair’s current momentum is strong and the business remains well placed to execute against our strategy and to continue to deliver profitable growth,” said Corcoran.

“The proposed merger with Paddy Power is hugely exciting. It would create a truly global sports betting group with unmatched products and talent, and significantly enhanced scale.”

Interestingly, the deal has been announced alongside another development for the wider online gambling industry, as betting exchange Matchbook has created a startup incubator called mLabs.

The accelerator will see Matchbook handpick gambling startups to mentor with a view to help them develop ideas and take them to product launch stage.

The company’s head of research David Mills is leading the project and hopes to jumpstart a new wave of entrepreneurship for the sector.

“mLabs is a community where like-minded people can share their ideas, help each other, improve, grow, collaborate and see their ideas evolve together. We see incubation as a two-way process,” he said.

“Successful and innovative businesses tend to make wholesale changes to their ideas before hitting on a successful formula. Talking to others who have been through a similar process is always beneficial.”