BetfairBetfair is the worlds largest international online sports betting company and the worlds biggest betting community.

The company has over three million registered users who bet on sports events and play online games including poker. Betfair is the worlds largest betting exchange handling 1,000 bets a second and completing 5m transactions a day, which is more than all European stock exchanges, combined. The company floated on 22st October 2010 at an issue price of 1,300p, raising 211 million and gave the company a market capitalization of 1.4 billion. Ticker Date of listing Issuer Mid Industry Price range Offer price Percentage share capital in offer Over-allotment option Estimated gross proceeds Market capitalization at offer price BET 22nd October 2010 Casinos & Gaming 11 to 14 and was later narrowed to 12.50 to 13 1,300p 15.2% (16,227,462 shares) 1,750,322 shares 211.0 million 1.4 billion

Reason for IPO

At the time of listing Betfair had 151m of cash so there was little need to raise further funds in an IPO, so the main reason for the listing was to-provide an exit for investors and to provide opportunities for acquisitions by creating liquidity around Betfairs stock. The rationale for IPO was to1. Provide exit for the investors. 2. Provide flexibility to react to a developing and consolidating online betting and gaming Industry. 3. Develop international operations through the enhanced transparency and reputational benefits of being a publicly listed company and will therefore enable Betfair to grow more quickly than it could as an unlisted company. 4. Provide ongoing flexibility and liquidity for existing Shareholders.

Pricing (Auction) method followed

100% Book Building process

IPO issue price

Betfair does not pay any dividends and does not plan to pay any this year. In the prospectus they have indicated that they will target an initial payout ratio of approximately 20 per cent. With no historical dividends we have used the DCF to value the offer price. Our valuation calculates the share price at 17.65, which is a 35.77% discount to the 13.00 offer price. The issue price valued Betfair at 1.4 billion, which is 4X sales and 93X net income. Unlike other gambling companies, Betfairs valuation is more inline with technology companies such as Google, eBay, and Yahoo. Valuation method used here is FCFF. Assumptions under this method1. Risk free rate is taken 3.5 % from UK treasury bills and risk premium is taken to be 5.5%. Beta has been taken to be 0.61. 2. Terminal growth rate is taken to be 22.22% which is around the CAGR for sales. 3. Most of the calculations for future cash flows has been done by taking CAGR for past 3 years and projecting it further.

Post Listing PerformanceOn the 22nd October 2010, Betfair started conditional trading on the London Stock Exchange at an opening price of 1,300p, the shares hit an intraday high of 1,620p before closing at 1,550p an increase of 19%. When the shares began unconditional trading on 27 th October Morgan Stanley exercised an over-allotment option on its shares (representing an additional 1.6% of total shares). After the strong first day increase the shares traded above their opening price of 1,300p for over a month until the end of November 2010. Since December 2010 the share price has been in constant decline, which is in sharp contrast to the FTSE All Share index, which has been relatively stable over the same time period.

IPO PERFORMANCEDate Issue Price End of day 1 End of week 1 End of month 1 Today 18/08/11 Price 1300p 1550p 1435p 1453p 615.50p % Movement +19.23% +10.38% +11.76% -52.65%

The above graph gives comparison of Betfair from the day of its start to date with respect to FTSE index. It shows it has given has been low returns in comparison to the index and Betfairs stock has kept on decreasing.

IBs involved and their specific roles

Name of IB Goldman Sachs Morgan Stanley Barclays Capital Numis Securities Limited Role Joint Book Runner, Joint Sponsor, Underwriter Joint Book Runner, Joint Sponsor, Underwriter Co-Lead Manager, Underwriter Co-Lead Manager, Underwriter