Why the industry's M&A mania shows no signs of slowing down

The UK gambling landscape has changed significantly following the formations of Paddy Power Betfair and Ladbrokes Coral while Rank and 888’s recent approach for William Hill suggests that the wave of consolidation will continue, spurred on by rising regulatory costs.

These so called ‘mega mergers’ are not merely UK focused. With regulatory clarity imminent in key markets such as Sweden, Germany and Holland, and the GVC acquisition of bwin.party for more than £1bn, we are seeing a flurry of M&A across Europe.

While the European regulated market has grown at a healthy rate of 19% between H115 and H116, according to Eilers, the listed gaming companies in Stockholm and London in particular are under pressure to sustain double-digit growth. This is resulting in an ‘acquire or be acquired attitude’ and a search for new markets that might provide more of a ‘blue ocean’ to tap into, rather than the ‘red oceans’ of the UK and Nordics.

While headlines are dominated by mega mergers, acquisitions are being made by and of small and large companies, as evidenced by Betsson’s shopping spree this year which includes Netplay TV in the UK for £26m, Premier Casino in Spain for €3m and TonyBet in Lithuania for €6m.

Local knowledge

Scale seems to be the prevailing logic for M&A and while this is evidently true, the reality is more nuanced than that. Companies are looking to acquire local understanding in new and emerging markets to gain an edge, to diversify into new verticals and to skill up in certain areas of their supply chain such as marketing and product.

We see geographic diversification as a strong driver to reduce market risk and maximise returns from a specific product set and this is happening both on the B2B and B2C side. On the one hand, companies such as Playtech are acquiring slots content businesses like Quickspin to allow them to widen their offering for the Nordic market, and on the other we see, for instance, Mr Green acquiring Dansk Underholding to expedite the launch of the Mr Green brand in the regulated Danish market.

The reality is that there will always be interest in Tier 1 European markets like the UK, Sweden and Germany, especially in response to clearer regulatory frameworks. However, we also see operators turning their attention to regulating and regulated countries in Central and Eastern Europe to find growth opportunities.

While Italy’s licensing regime is somewhat uncertain with the upcoming renewal of licences, it is one of the largest European regulated gaming markets where retail is still dominant.

Online in Italy offers an attractive opportunity given its acceleration as result of improvements to internet speeds and growing consumer acceptance of online brands. As such, we expect to see operators with an understanding of retail enter or consolidate to take advantage of online growth.

Eastern promise

Fortuna has shown strong interest in acquiring across Central and Eastern Europe. It recently acquired Hattrick Sports Group whose holdings include Casa Pariurilor, the leading betting operator in Romania, and Prva Sportska Kladionica, the second largest operator in Croatia, which reflects Fortuna’s desire to become the leading omni-channel operator in the region.

The Balkan states and markets such as Romania and Czech Republic have very strong gambling cultures, and the opportunity for acquirers is what they bring in terms of online and omni-channel capability.

Gambling companies are striving for scale via geographical diversification and it’s likely that the next few years will see the emergence of more pan-European operators.

And operators will look further afield at regulating or high growth potential markets, with expansion sure to involve M&A one way or another. 

Sandford Loudon has nine years’ experience as an investment banker and has spent the last six at Oakvale Capital leading multiple transaction and advisory mandates for some of the major companies across the gaming space.