Case study: achieving optimal valuation for an affiliate network
M&A in the igaming affiliate space shows no sign of slowing down so iGaming Business asked RB Capital to provide a case study to explain how the process worked and how business owners can optimise their companies for a sale.
M&A levels in the affiliate space have been gearing up strongly over the past two years and some of the deal sizes being achieved by affiliates in recent transactions are head-turning enough to make many others consider a sale.
Indeed, many successful affiliates are receiving unsolicited approaches from larger networks such as Catena Media, XL Media and Raketech, which have been snapping up smaller affiliates at a steadily increasing pace over the past few years.
As the table below right shows, Catena Media alone has picked up almost 20 new igaming affiliate businesses since November 2014.
Given the dynamic of the metrics outlined above, affiliates would be wise to seek specialist advice even if they receive what seems like a good offer.
As this case study provided by RB Capital shows, it is possible to substantially increase the valuation of the underlying business.
iGaming Business asked RB Capital to give a detailed breakdown of the process to help guide other relevant businesses considering an exit strategy.
The below case study is an example of an M&A process that RB Capital has recently undertaken within the igaming affiliate space.
From initial engagement to signed contract, RB Capital brokered the sale for a period of 13 weeks, during which it helped increase the valuation from initial interest to final sale by 70%.
How the process worked
The founders of an igaming affiliate network were considering an exit strategy and had been approached by a series of entities, that had expressed an interest in acquiring all or part of the network.
The network in question was set up in 2013 and consisted of 30 independent URLs, focusing mainly on casino, slots and poker.
Through a combination of blogs, authority sites, free game sites, reviews and exact match domains, the network achieved a consistent and healthy influx of organic traffic, and used occasional paid strategies where required.
It had recurrent affiliate revenues from igaming operators through a distributed revenue strategy.
RB Capital was approached by the founders for advice and a view on the current financials to gain an understanding of an optimal valuation window.
Upon initial review, it became clear that the enterprise valuation (EV) had the potential to be higher than the initial indicative offers made by the interested buyers.
RB Capital advised the affiliate to initiate a preliminary business review, at the end of which, if the founders were satisfied with the outcome, RB would initiate a formal sales process.
The due diligence and discovery process consisted of the following steps:
- Detailed understanding of the business to identify the key USPs of the affiliate network,
- Review of underlying mechanicals to complete a list of KPIs that RB Capital was expecting,
- Deep dive into the audited accounting figures and bespoke financial modelling of top-level metrics,
- Full risk analysis and mitigation strategy of each aspect of the business, together with a short- and medium- term plan to offset any anticipated risks.
The analysis and risk plan covered financial, technical, product, branding, IP, acquisition and partner due diligence, and a structured alignment plan applied to each.
The review process took five weeks, during which RB Capital was on site with the founders to undertake all of the activities outlined.
Through this process it became clear there were a number of aspects of the affiliate network that could be corrected, aligned and/or rightsized ahead of any impending due diligence from would-be buyers, thereby setting correct expectations as to short- and medium- term plans for the business.
At the end of this process, RB Capital provided a full detailed report, as well as recommendations for the way forward.
The analysis included a proposed valuation range, together with an indication of the key strengths, drivers and USPs for the business.
The report recommended the initiation of a discretionary bidding process to guarantee the privacy of any serious buyers, as well as the integrity of the seller.
It also advised the setting up a full virtual data room (VDR) to structure the information gathered as part of a formal process.
The bidding stage was a relatively quick and straightforward process, facilitated by the ease of information already held in the VDR.
Each interested party was subject to due diligence before being able to access the required data. The criteria was intentionally strict and as a result only one in four of the interested bidders were granted access to the VDR.
After a six-week bidding and due diligence process, the buyers were shortlisted to three entities and each had meetings with the founders.
The preferred exit strategy was articulated by the affiliate network, and each buyer submitted a formal offer of interest.
During this stage, RB Capital advised on the ideal buyer/seller conditions and the preferred buyer was selected based on offer and terms.
RB Capital engaged in a final negotiation with the preferred buyer and successfully increased the valuation by a further 5%.
RB Capital then coordinated with all the necessary legal entities and frameworks to formalise the sale.
Once the formal transaction was effected, RB Capital continued to work with the founders during the handover phase to help organise and facilitate the transition across both parties.
The affiliate network has now been fully acquired by the buyer, and has successfully transitioned into the buyer’s network.
The case study can be viewed on RB Capital’s website by following this link.
Many of these issues will be discussed in depth during the Nordic Affiliate Conference.
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