Entain named in £6m High Court lawsuit over Intertrader sale

Entain has been targeted in a £6m lawsuit over the sale of its Intertrader financial brokerage business to London-based venture capital firm Burren Capital Advisors Ltd.

The suit was filed in the High Court of Justice of England and Wales by Raven Ventures International, a special purpose investment vehicle set up by Burren Capital Advisors as part of the acquisition process.

It alleges that Entain (named in the suit under its ElectraWorks business) transferred money out of the Intertrader business via one of the firm’s subsidiaries back to Entain in order to avoid having to pay out on a cash shortfall trigger included as part of the acquisition agreement.

Under the agreement, if funds registered to Intertrader dropped below a certain threshold by the close of the acquisition, the firm’s parent company, ElectraWorks, would be required to make up the shortfall.

Intertrader was required to repay ElectraWorks any outstanding debts under a £25m loan facility, which at the time of the acquisition had a balance of £13.6m.

Intertrader and one of its subsidiaries, Argon, was required to retain enough funds to meet regulatory capital requirements.

This amount was set at £10m for each business, with ElectraWorks making up the funding difference of either business if it were unable to meet its financial opbligations.

At the time, Intertrader was only able to repay £6m of the loan facility balance to ElectraWorks.

However, the suit alleges Argon transferred €7m to Intertrader just before the deal’s conclusion in order to avoid a cash shortfall that ElectraWorks would be required to repay.

“At the time of closing, Intertrader did not have sufficient cash to repay the seller facility and maintain its capital requirements. But for the payment, ElectraWorks [Entain] would have had to capitalise Intertrader,” the suit states.

The suit alleges the transfer was made without the full knowledge of the Intertrader board of directors.

“As a result, there was £6m less in cash in the target companies at the date of completion than there would have been had the [transaction] been performed according to its terms,” the suit adds.

It also suggests that the €7m payment made by Argon to Intertrader breached the contract and warranty agreements included within the deal, which had a negative impact on the value of Intertrader’s shares.

The suit asks for a court order requiring the payment of £6m in damages by ElectraWorks to make up the difference between the acquisition share value and the sum Raven Ventures International was contractually obligated to receive.

Established in 2009, Intertrader is a margin trading broker offering multi-asset-class execution and clearing services, as well as spread betting and prime brokerage services for institutional investors.

In 2020, Intertrader recorded a loss after tax from underlying operations of £14.4m, compared to a 2019 loss of £0.6m, as well as a 124% year-on-year increase in costs to £20m.

Entain revealed its ambition to sell Intertrader by the end of 2021, something it later delivered on in November of that year, when it was sold to Raven Ventures International LTD, the business operated by Burren Capital Advisors.

Raven Ventures International has continued to operate Intertrader since that time, maintaining its brands and service offering, as well as making no changes to existing customer login details.

Entain said it would not comment on an ongoing case after being contacted by EGR.