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NEWS 9 May 2016
M & A: What other i-gaming deals could we see in the coming months?
By David Cook
When the UK point-of-consumption tax (POCT) was implemented in December 2015, forcing the UK’s online operators to pay a 15% tax on remote gaming net revenue, regardless of where they are based, it was inevitable that i-gaming companies would look to consolidate in order to bear the tax burden.

The tax has been called the primary reason for mergers such as Paddy Power Betfair, which completed in February, and the impending deal between Ladbrokes and Coral, announced in July but awaiting approval from the Competition and Markets Authority.

There have also been the deals for GVC Holdings to acquire BwinParty this year and Amaya buying Oldford Group, and PokerStars and Full Tilt in the process, in 2014.

M & A has not been exclusive to operators of late, with NYX Gaming Group being announced in April as the purchaser of fellow provider OpenBet for £270m, backed by William Hill and Sky Bet, which are contributing £80m and £20m respectively.

One view could be that there is little activity that can possibly be left to take place, but should certain industry players still wish to consolidate, then these possibilities would seem the most realistic at this time.

Amaya and PartyGaming

Amaya may have other priorities on its to-do list at the moment, with David Baazov having indefinitely left the position of CEO after being charged by a Quebec financial security regulator with five charges related to insider trading. There is also the growth of PokerStars in New Jersey to worry about, along with the merging of the Stars and Full Tilt platforms on 17 May.

However, should the focus be placed back on M & A, the possibility of acquiring the casino and poker arm of BwinParty could still be in play.

Amaya was initially involved in online gaming group GVC’s plans to purchase BwinParty, as GVC announced in May last year that its proposal would be jointly financed by Amaya, but Amaya later dropped out of the process.

Kenny Alexander, CEO of GVC, which eventually bought BwinParty, told Gambling Insider that Amaya eventually had to pull out of the deal, due to the time it needed to resolve its debt, so GVC pressed on alone to beat 888 to the punch and buy BwinParty for 25p in cash plus 0.231 new GVC shares per BwinParty share. The deal completed in February.

The plan had been for Amaya to “take some of the gaming assets”, while GVC took the sportsbook, according to Alexander. Alexander also said that “the US is not a big part of our [GVC’s] overall strategy”, and that the market would need to open itself up to sports betting in order for things to be any different. GVC has been allowed to operate the PartyGaming brands in New Jersey while it awaits approval from the New Jersey Division of Gaming Enforcement.

On any future deal, Alexander said: “There’s no reason why we can’t do another deal with Amaya down the line.” Do not be too surprised if Amaya remains interested in consolidating a strong New Jersey and of course overall-poker presence by acquiring PartyPoker and PartyCasino. PartyPoker has already returned to quarterly growth for the first time in five years under GVC’s management. Does this make it ripe for a deal?

William Hill and Rank Group

Could Henry Birch possibly do a Breon Corcoran? Corcoran, the former COO of Paddy Power, has overseen the Paddy Power Betfair merger, having left the Irish operator to become CEO of Betfair, where he took over the reins in 2012. This has created a merged group with combined net revenues of £1.32bn for the full year 2015.

Birch, having left the position of CEO of William Hill Online in November 2012 after four years in the role, became chief executive of the Rank Group, owner of the Grosvenor Casinos and Mecca Bingo brands, in 2014. In a feature article published by the London Evening Standard, it was stated that “Birch is keen to do a deal to grow the digital side of the business if it could accelerate the organic plans”. This may well mean that Rank is looking for another platform provider as opposed to an acquisition or sale, but as Corcoran must have used his contacts to strike the best deal for Betfair, could Birch achieve something similar?

Grosvenor Casinos reported digital revenue of £22.3m for the year ended 30 June 2015, up from £13.5m, while Mecca Bingo’s digital revenue was £65.2m, up from £58.9m. In comparison, Hills’ overall online net revenue for the full year 2015 was £550.7m, up 4%, but would have been approximately £648m were it not for the POCT.

Hills has previously shown it can adequately build an online arm and, you never know, it could even inject sports-betting revenue into the Grosvenor Casinos brand. A deal to purchase the online assets held by Rank could be the answer both sides are looking for.

William Hill and 888

This would almost be akin to when a teacher asks their students to pair up for a science project, only there are two shy students in the corner, looking around aimlessly while not being confident enough to ask if anybody else would like to work with them. After all other pairs have formed, as the only remaining students, they are forced to put up with one another. Both operators seem to have missed out on the craze of M & A, but certainly not for the want of trying.

Hills attempted to buy 888 last year, but an inability to agree upon the value of 888 with a key 888 stakeholder led to the collapsing of the talks.

As expected, both Hills (see above) and 888 have been adversely affected by a combination of the introduction of the POCT.

888 chairman Brian Mattingley said the POCT, as well as EU VAT charges and currency movement headwinds, affected profitability, as 888 announced its profit before tax fell by 52% to $32.5m for the full year 2015.

For talks to reach the stages that they did, there was clearly enough interest from both parties for something to happen, and it may just take Hills to swallow some pride and increase its valuation of 888. It would have to decide if it is worth the higher acquisition price for the long-term gain of coping with the POCT.

FanDuel and DraftKings

This one has been mentioned in various articles and unlike the others mentioned in this article, may not be entirely financially-driven.

FanDuel and DraftKings have pulled out of six US states since the start of October, most notably in Nevada and New York. In a majority of these cases, the removal of paid-contest offerings from the state were a result of the state’s attorney general ruling that daily fantasy sports (DFS) are illegal.

Could streamlining their efforts make things easier in the fight to make DFS legal in the US? One could argue that a state attorney general ruling that DFS is gambling is not inclusive of the number of operators in the market, but it could save a number of separate appeals and campaigns and might make things clearer to ruling judges if both want to implement one clear strategy and operation.

This would also virtually eradicate the burden of worrying about competition for both operators, at least for the time being.

However, with the legal battles and European expansion currently going on, as DraftKings recently launched in the UK and FanDuel is attempting to follow suit, it may be some time before both have the time to cross over the divide and hold talks on a potential M & A deal.
RELATED TAGS: Online | Mergers & Acquisitions | Bingo | Poker | Casino
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