With Brexit fast approaching and the current raft of reactionary legislation going through Parliament set to affect the gambling industry for years to come, the UK’s reputation as a civil and friendly place for the industry to do business is clearly no longer what it once was.
In our latest roundtable, we sit down with three of the industry’s M & A veterans to ask if we’ve seen the end of the golden age of M & A in the UK and whether more friendly environments lie overseas.
Julian Buhagiar (JB) – Co-Founder, RB Capital:
Julian Buhagiar is an investor, CEO & board director to multiple ventures in gaming, fintech & media markets. He has led investments, M & A and exits to date totalling more than $340m.
Jesper Søgaard (JS) – CEO, Better Collective:
Co-founded affiliate Better Collective in 2004 and has been the driving force of the company ever since. As CEO, he has grown Better Collective from being a startup to a publicly traded company that is one of the foremost affiliates in the betting industry. Søgaard holds a Master’s degree in Political Science from the University of Copenhagen.
Dominic Mansour (DM) – CEO, Bragg Gaming Group:
Dominic Mansour has an extensive background of nearly 20 years in the gaming and lottery industry. He has a deep understanding of the lottery sector having been CEO at the UK-based Health Lottery and also built up plenty of air miles, working closely with government lotteries around the world at GTECH where he was VP of Product. He built bingos.com from scratch and sold it to NetPlay TV plc, where he became CEO and a PLC board member.
Have we seen the end of M & A in the UK?
JS: The UK is by far the most mature market out there, meaning it has already experienced a lot of consolidation, but I don’t think M & A are ever completely finished. The betting culture of the UK market will always be of interest for the online gaming industry, so most active affiliate players will always keep an eye out for potential activity. However, it’s fair to say the UK market is not prioritised as it once was.
DM: The top-tier M & A can’t go much further as the big operators have consolidated – as we have seen primarily with GVC Holdings but also Paddy Power Betfair (now known as Flutter Entertainment). However, with the mid/smaller-tier operators we will certainly see some activity. The increased taxes, tougher advertising environment and therefore tighter resulting margins are going to force more consolidation as the sector continually looks for margins to mitigate these costs and challenges.
JB: Given the uncertainty with regulations, taxes and even cross-border transactions in the short term, existing players will capitalise on existing momentum to explore acquisitive interest. Previously thriving organisations under a lighter regulatory environment are now rethinking their medium-term strategy. Whilst a mass exodus of brands is not outside the realms of possibility, it is more plausible that a series of M & A will happen over the next 18 months, capitalising on the existing brand momentum to maximise deal value.
What are investors now looking for? (Size, regulated/unregulated markets, casino/sportsbook, US potential)
JS: There has without a doubt been an increased focus on compliance with increased regulation and re-regulation in markets. Hence, having a strong legal department that is updated on regulatory changes is key. We are also currently seeing a consolidation in the industry, with lots of activity driven by the larger organisations. Size, therefore, also constitutes a key factor for investors. With the opening of online betting in more and more US states in the pipeline, investors are, of course, increasingly looking for prospects that have a setup ready to deliver large market shares.
DM: It depends entirely on what the investor is looking to achieve. Market share? Potential? Margins? The reality right now is regulation continues to be the driving force, whether that’s a market like Sweden or more recently, the US. Regulation brings opportunity and that brings investor interest.
What can we expect in terms of consolidation in Sweden, a small jurisdiction where over 60 licenses for online gambling have been issued?
JB: It’s too early to rank Sweden. The regulatory dust hasn’t settled yet and if the (mostly painful reading) Q1 earning reports of Swedish-centric companies are anything to go by, the common sentiment would be to stay away for now and let the first movers absorb the legislative pain, ahead of making any acquisitive moves.
JS: As has been the case for the industry in general, in Sweden, we can expect to see an increased consolidation of larger offerings. With increased re-regulation, more resources need to be allocated to compliance and here larger actors have a competitive advantage. I therefore expect to see M & A activity to continue at a high pace in the market.
What can we expect to see in terms of US consolidation? Will there be interest from European investment firms?
DM: Right now, it’s the latest ‘Gold Rush’ in the US. Some of the numbers being thrown around are completely ludicrous. As a result, there’s going to be plenty of operators who get burned fingers overspending off the back of the hype. Some will fail and others may build enough that interests third parties to acquire them cheap.
JB: US consolidation will be a long-term play. There is immediate interest in smaller content-centric platforms, as well as data-harvesting entities (think daily fantasy sports and esports), but there are a few additional moves to be made on inter-state players, depending on how the recent Department of Justice note will be interpreted. In limbo are the PSPs, given their uncertainty on the legal standpoint.
Are there certain jurisdictions investors currently keep a closer eye on?
JS: We believe investors pay close attention to the same jurisdictions as the industry, that is those US states expected to regulate in the near term.
DM: Right now, we are seeing very little interest in any other jurisdiction outside the US. It is the main market the industry has been waiting for to open up and the expectations are high on what possibilities it may bring. We’re going to have to wait and see what opportunities the US market brings.
What can we expect in this area over the next twelve months?
JB: In general, expect a flurry of short-term mergers and acquisitions in the UK, and small plays for US tech companies, while more risk-incentivised investors will be buying up swathes of IP in the Far East. In the medium term, the Nordics will enjoy renewed consolidation interest, with increased longer-term interest in US-based inter-state operators.