Analysis: Why has there been so much worldwide M & A?

By David Cook
Another M & A deal was announced last week, as MGM Resorts is to purchase Boyd Gaming’ 50% stake in Borgata Hotel Casino & Spa for $900m.

M & A activity has seemed ever-present in the gaming industry in recent times, both on the operator and provider sides of the fence, be it in land-based or online, in Europe or in North America, with some of the high-profile deals including a merger between Paddy Power and Betfair that completed in February and NYX Gaming Group’s £270m acquisition of OpenBet in May.

If the consolidation is happening anyway and you’re not participating in any M & A, then you’re getting smaller and becoming vulnerable to competitive forcesPaul Leyland


Two industry analysts spoke to Gambling Insider about why M & A activity is occurring.

Alex Bumazhny, Senior Director, Gaming, Lodging & Leisure – Fitch Ratings:

“It’s a little bit different in each case. As far as US suppliers and the lottery are concerned, those mergers made sense [such as GTech’s $6.4bn acquisition of IGT]. The slot suppliers have been facing secular pressure from declining slot floors. Slot machines are falling out of favour with players, so lottery is a better partner because there is a more consistent cash flow, but the slot manufacturers have the content. That works well with lotto, which is becoming increasingly interactive with online lotto. Capital markets were petty accommodating, so they could have raised quite a bit of debt in order to take on the slot manufacturers.

“In Europe, I think it’s a bit different, as it has been driven by regulation. There are tighter regulations and there is a difficulty competing with online gaming, which tends to consolidate players naturally, because you’re trying to get increasing scale. For poker, you have ring-fenced markets like France that can only accommodate a few large players.

“I think most of the property-based M & A has been happening in the US. In the US, gaming is a state-type industry, so when people have pretty decent clarity over future revenues, you have low interest rates, which make assets that generate cash flow more appealing. Given how long we’ve been in the expansion cycle, it seems to make sense that we see some M & A.

Paul Leyland, Regulus Partners:

“On one level, the activity isn’t surprising. It’s been very well flagged that M & A is probably the safest way of being on the right side of consolidation. What I mean by that is when you see various markets with structural issues, whether it’s the international poker market, gaming machines or betting shops in the UK, there are structural costs that are increased on top of that. These could be tax in regulated markets or when the cost of delivery of remote betting is going up. What that does is it squeezes your profits, particularly if you’re a leveraged company, i.e. you’ve got debt. That can cause enormous pressure. The only way in which you get around that is by consolidating in order to improve scale and drive synergies. You’re then potentially on the winning side and that has been a theme of practically all the consolidation we’ve seen, whether it’s suppliers or operators, land-based or online.

“If the consolidation is happening anyway and you’re not participating in any M & A, then you’re getting smaller and becoming vulnerable to competitive forces. From that perspective, the M & A thesis was very clear. Where I think there probably has been a surprise is that this is an industry that has historically been very good at talking about itself and has not always been very good at doing things. What we’ve seen in the last two years is a real sense of urgency activity. I think a lot of companies have seen the writing on the wall, in terms of their own particular positioning. They have done the right thing to attempt to fix it through scale and broadening revenue channel products, as well as taking out a huge amount of operating costs.”

Both Bumazhny and Leyland contributed towards a wider article on the topic of potential future M & A in the gaming industry. This article will feature in the July/August issue of Gambling Insider . Click here for a free membership.

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