Amaya Gaming Looks to Acquire Cryptologic

Cryptologic, founded by brothers Andrew and Mark Rivkin in the basement of their parents house, became one of the world's largest online gaming platform providers. The company launched their first licensee, InterCasino, in 1996.

Cryptologic, founded in 1995 by brothers Andrew and Mark Rivkin in the basement of their parents house, became one of the world's largest online gaming platform providers. The company launched their first licensee, InterCasino, in 1996.

Those who believed the savvy takeover of Edmonton’s Chartwell Technologies was Amaya Gaming’s (TSX:AYA) big play of 2011 were no doubt surprised earlier this month when the Point Claire, Quebec company announced it was closing in on the acquisition of one time high-flyer Cryptologic (TSX:CRY)

On December 15th, Amaya CEO David Baazov announced it had agreed in principle with CryptoLogic on the general terms of a possible recommended all-cash offer for all the outstanding share capital of the company that Amaya does not already own, priced at $2.50 (U.S.) per share. The proposed deal values CryptoLogic at about $34.5-million (U.S.).

On Friday, Shares of Cryptologic on the Nasdaq, where the company is also listed, closed up 2.2% to $2.37.

The move, if successful, would punctuate a strikingly aggressive first months of action for Amaya as a public company. The company, which was founded in 2004 and IPO’d on the TSX Venture Exchange in July of 2010, has in the past designed electronic table games that allow players to remotely play Majong, bingo or horse racing.

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But Amaya really took off when it announced, early in 2011, that it had secured a license from the Betting Control and Licensing Board of Kenya to operate on-line gaming. Amaya’s SMS Lotteries allow users to purchase lottery tickets from their phones and charge directly to the users mobile account. The Kenyan license came on the heels of similar agreements in Uganda and the Dominican Republic.

In the mid part of the last decade, an acquisition of Cryptologic by Amaya would have seem far-fetched at best. But while Amaya was getting its feet under it, Cryptologic was faltering. The company’s revenue fell from more than $73 million in 2007 to just $26 million in fiscal 2010. In March of 2011, with its stock having bottomed to $1.57 on the TSX, the board of Cryptologic announced it was conducting a strategic review.

Amaya, meanwhile, believes there are jewels amid the rubble of Cryptologic, which sells customer support and marketing support services to Internet gamers like 888.com and Betfair. It thinks the portfolio offering is complementary to Amaya’s existing suite of technologies, will give Amaya increased access to the European gaming market, and will deliver “meaningful” cost synergies.

If Amaya looks to continue its pattern of aggressive acquisitions, it will almost certainly have to look outside Canada. The number of Canadian tech stocks in the gaming space is now woefully slim, with device-maker Mad Catz (TSX:MCZ) and multi-platform game developer Transgaming (TSX:TNG) among the few notables.

Shares of Amaya closed 2011 at $2.85.

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