Back in business: How the recent M&A flurry shows the industry is back on track

The industry has been treated to a smattering of M&A activity in recent months, capped off by a double announcement on Monday.

The first came in the shape of Fanatics snapping up PointsBet’s US operations for $150m, seeing the firm further its aim to challenge the duopoly posed by DraftKings and FanDuel in the US.

On the same day, Aristocrat strengthened its aspirations to dive into online real-money game, announcing a $1.2bn all-cash move for NeoGames to complement its snapping up of Roxor Gaming last year.

Meanwhile, Entain made two moves in April, parting with $160m for live scores firm 365scores and $13m for esports betting supplier Sportsflare as it looks to put more effort into its Unikrn offering following launches in Brazil and Canada (excluding Ontario).

In the supplier world, GeoComply moved for OneComply while Betr puts its eggs in the in-house basket after acquiring Chameleon for $7m from FansUnite. FansUnite’s quickfire sale started after it offloaded B2C brand McBookie for C$4m to an unnamed party.

In what has been a whirlwind few months, LeoVegas also bolstered its B2B aims after moving for Push Gaming in the first acquisition since the group was taken over by MGM Resorts.

The slew of deals seemingly points to the industry getting back to business as usual. The macroeconomic environment had bared its teeth, spooking investors and seeing capital dry up. The looming dark cloud may have lightened slightly, allowing heads to pop up above the parapet.

Speaking to EGR, Acies Investments partner Chris Grove said this was always going happen; an industry with such an appetite can only hibernate for so long.

Grove said: “The gambling industry has been in a state of constant consolidation across the 20 or so years that I’ve been a part of it. Periods without M&A are the exception, not the rule. This wave of activity feels like a return to the norm after a nadir of uncertainty.

“Access to and cost of capital will remain meaningful brakes on the pent-up M&A ambition of the global gambling industry. But if prices continue to drop, at some point you get an equilibrium that moves us back to the traditional front foot on M&A. We may already be at or past that point,” he added.

If the absence of M&A for a brief period was just a printer error in the story of the industry, it begs the question: why the flurry now? Stock prices have fallen considerably, with market caps mere fractions of what they used to be. PointsBet was valued at north of $4bn last year. The drop off is material, and firms with strong balance sheets will move to swoop in.

The cost of doing business is also enormous. PointsBet stressed it was the seventh largest operator in the US, but with FanDuel, DraftKings, BetMGM and Caesars acting as the fearsome four stateside, a top 10 position doesn’t actually mean that much. Kindred claim to be the 10th largest, and the firm’s market share is a pittance compared to the leading pack.

Tekkorp’s Matt Davey explained: “It’s great to see the M&A market thawing from the impact of the rapid rise in interest rates across the globe. The rising interest rate environment created significant uncertainly in both the quantum of capital capable of being raised along with the actual cost of capital used to underwrite the deals.

“With the recent deal activity executed in the gaming industry from Australia to North America we have seen two clear trends emerge. Firstly, acquirers have tended to focus on publicly listed assets as their values have experienced greater compression than their private market comparables, and secondly, there has been a material difference in valuations paid for companies that are strategic and profitable versus those that are strategic and loss making,” he added.

Smaller fish to fry

Away from the glitz of the US, FansUnite’s sale of McBookie to an unnamed firm piqued the interest of Nick Arron, lead partner in the betting and gaming team at Poppleston Allen.

The former parent company is looking to stay in its B2B lane, and with the recent release of the white paper into the Gambling Act 2005 review and the struggle to attain cut through, the deal was sanctioned. Tier-two operators in the UK face the monumental task of facing up Flutter, Entain and 888/William Hill. McBookie, while hardly a household name, is one of the chasing pack.

Arron said: “Measures such as affordability checks, a single customer view and maximum stake limits for online will have a disproportionate impact on smaller operators as they are likely to have fewer resources to deal with the increasing compliance demands.

“We had already seen a number of tier-two and lower operators exit the market prior to the white paper’s release and we expect more M&A activity in this space now there is more clarity on the future direction of the UK market,” he added.

More to come?

With headlines being peppered in recent weeks with M&A, and many in the industry hoping the blip has been rubbed out, who is next? Kindred Group CEO Henrik Tjärnström announced his shock departure this week as the Unibet parent company is in the midst of a strategic review which could lead to the sale of the company.

The likes of Entain and Flutter could snap up a continental European legacy brand with some potent in-house tech capabilities in a cut-price deal. Better Collective could well expand on the 8% share it took in Catena Media, with the former still engaging with an investment bank over a potential sale. The Stockholm-listed affiliate’s share price has slumped, and with a narrow focus on the North America market, its fat has been trimmed enough to make a move make sense.

Davey added: “We may not be at the peak of the rate rises but we are close, and thus we anticipate further deal activity over the coming months and expect to see a number of transactions of in both public and private assets as buyers gain confidence in market conditions and competition for differentiated companies increases.”

But with eyes on the US, and seemingly two camps being set up in the fallout from the Fanatics/PointsBet deal, operator M&A may be at another statis. There appears to be no standout targets, and with investors hoping for profitability in the near term, expended capital to acquire and then embed a new firm could be a task tantamount to stress.

Grove said: “I don’t believe we’ll see a wave of additional operator consolidation in the US market. There simply aren’t enough relevant targets and relevant acquirers. There are some – Rush Street Interactive is a name we’ll continue to hear bandied about – but probably not enough to generate a flurry of activity.”

The path to consolidation will continue without doubt. It is merely a question of who is next on the block now the money is flowing again.