Will Playtech win from Ladbrokes and Gala Coral merger?

This week’s news of ongoing merger talks between Ladbrokes and Gala Coral Group caught almost everyone in the gambling sector off guard. Even certain highly-respected industry analysts were forced to hold up their hands and admit they got it wrong just days after ruling out any imminent M&A activity.

The proposed deal, which may take a year to complete, would create a new power player in the UK online gambling market with combined digital revenues of approximately £400m putting it in the same league as Paddy Power and snapping at the heels of old foes William Hill. However, should a deal complete, it wouldn’t just be Ladbrokes, Gala Coral and its rivals feeling the change.

Software provider giant Playtech – itself not averse to reshaping the market through M&A activity – will surely be at the centre of any future plans the combined group has. As their core software supplier, Playtech has long standing relationships with both parties involved and has been a key part of Coral’s digital revival.

Gala Coral has also been at the forefront of Playtech’s multi-channel forays and its Coral Connect card, developed in conjunction with Openbet which also supplies Ladbrokes, is at the core of Playtech’s hopes for more retail and digital convergence.

Ladbrokes, likewise, sought Playtech’s help back in March 2013 as part of a five-year agreement to address fundamental weaknesses in its digital offering, but a messy split from previous provider Microgaming meant Ladbrokes was unable to go through the integration gears as quickly as it would have liked.

Yet Ladbrokes’ digital business is now showing signs of growth on the new platform, and its links with the supplier are becoming ever more significant with the firm set to roll out Playtech-owned Mobenga sportsbook platform across all its entire digital sportsbook offerings.

Pulling the strings

However, is a merger between the pair a good scenario for Playtech? According to Eric Opara, an analyst at Edison Investment Research, the answer is a clear yes. “The fact that both Ladbrokes and Gala Coral are existing customers of Playtech should be a net positive for Playtech as it will serve to deepen the relationship,” he says. “Also while customer concentration remains something to watch at Playtech, they continue to make progress in diversifying their customer base.”

Clearly a larger combined entity will have greater pricing power in negotiations with Playtech, however Ladbrokes’ relationship with the supplier is still in its relative infancy and the early promise of its relationship appears to be finally coming to fruition. “I would not expect them to shake the tree too much on pricing,” Opara adds.

And the scenario is certainly one of the best outcomes for Playtech. strong rumours of a Paddy Power bid for Ladbrokes would not have gone down well, particularly with Paddys drive to take more of its technology in house potentially threatening the relationship Playtech has built with Ladbrokes over the past two years.

And some have suggested Gala Coral may have received a gentle nudge in the direction of Ladbrokes in order to see off a potential Paddys-Lads tie-up. “I’m sure they were behind the idea,” a senior director at one of the UK’s biggest operators says. “They certainly wouldn’t have wanted Paddys to buy Ladbrokes.”

But assuming it was actually as much of a shock to Playtech as the rest of the industry, the nature of the deal would have not been a surprise. The firm’s CEO Mor Weizer (pictured) has long predicted a move to consolidation on a bigger scale in the UK and talking to eGaming Review earlier this year, Weizer said a drive towards consolidation and a restructuring of the UK market would stand to benefit Playtech.

“The firm is well positioned in the UK market as the larger operators will benefit most through consolidation or gaining market share from small to mid-sized operators that have less firepower to invest into marketing,” he said.

“Fortunately for Playtech, all of the well-established operators are Playtech licensees and we definitely plan, hope and expect to benefit from that,” he added. “The market is still the most important for Playtech and we invest heavily into the relationships we have, work closely with our customers, and given the potential of new business regenerated, we definitely believe that 2015 will be even better for us in the UK.”

And while there is a long way to go on the deal and many questions yet to be answered, not least regarding the fate of the combined group’s retail estate, it’s clear this deal would likely only solidify Playtech’s position in the sportsbook sector and place the supplier once again at the heart of a UK-facing online success story and prime it for a significant omni-channel push. In the complex game of consolidation, it’s tough to see how they could be have dealt a better hand.