Gambling M&A drivers intact longer term despite current headwinds

Mergers and acquisitions (M&A) in the gambling space are expected to slow down as interest rates rise and economies deteriorate, however longer term there is still a compelling argument to expect continued activity.?

According to EY Global Consulting, in the first half of this year the global M&A market was relatively resilient. It says deal activity fell 27 percent in the first half from the same period a year ago, but was still up about 35 percent on the average of the previous cycle from 2015 to 2019.?

It says there were a total of 2,274 deals worldwide, worth some $2.02 trillion with the technology sector dominating nearly a third of activity.?

“Coming off the SPAC-induced highs of the first half of 2021, M&A activity was always going to go through a correction,” Andrea Guerzoni, EY Global Vice Chair – Strategy and Transactions, said in a recent report. “But what we see is that unlike when COVID-19 hit and deal activity came to a standstill, CEOs are still trying to look through the fog and are pursuing transactions that will help position their organizations for future growth.”

Interest rates not a deterrent

?U.K.-based? Entain is one such company. On a recent earnings call, executives said they wouldn’t let higher interest rates deter them from pursuing further growth opportunities. In fact, they argued that it might prove a positive as potential competitors pull back due to weaker balance sheet positions.?

Josh Brown, deals director in PwC’s consulting arm Strategy & Deals said Entain’s statement should be seen “as a positive bellwether for M&A in the industry.”

While the market volatility and softer debt markets are making M&A in the short term more challenging, particularly for bigger transactions, he argues in the longer term horizon, there are a number of compelling reasons why deal volumes should continue.

“The underlying fundamentals of the industry remain robust. High single-digit growth is expected at a global market level over the next five years. Within this, pockets are likely to grow significantly faster, supported by regulation, online growth, and innovation across the value chain.?

Attractive targets

At a global level, the industry remains fragmented. Combined, these result in a number of attractive targets for acquisition,” he told SiGMA News.

Brown said he sees potential for M&A activity across the board in the gambling industry. Changing regulations and the opening of new markets, such as Latin America, will present opportunities for geographic expansion.?

As will the growth of new product verticals, he said, pointing to Better Collective’s acquisition earlier this year of esports company Futbin.?

Retail operators will also continue to plug gaps in technology as the online markets grow, such as MGM Resorts’ acquisition of LeoVegas, while the same holds true for B2B businesses, which are likely to turn M&A to fill specific holes in their offering.?

Much of the deal flow in recent years has been driven by the opening up of the U.S. sports betting market as North American firms have sought expertise from more well-established European firms.

M&A to go cross border

However, Brown argues that the direction of that M&A may be set to change as the U.S. dollar strengthens against the euro and the pound, making it cheaper for U.S. buyers.?

The dollar has come close to parity with the euro this year, with the European common currency hitting a two-decade low in August.?

Donna B. More, a partner with law firm Fox Rothschild also sees the likelihood of more cross border M&A in the industry, with the U.S. players looking for opportunities in Europe, or even Australia.?

“I think in the next few years in the U.S., there will be more sports wagering-related mergers but not so fast,” she said.?

For Colin Mansfield, senior director at Fitch Ratings the interesting factor going forward may be whether the buyer and seller are able to see eye-to-eye. As the heady valuations of the past few years decline, some sellers may not be so keen to give up their company at a lower price.?

Join us: 14 – 18 November 2022 MALTA

One of the first European countries to regulate the gaming sector, Malta is a hub of global business. The island is an obvious choice for SiGMA’s presence in Europe and a strong foundation for the field’s future. With a plethora of prospects for both investors and entrepreneurs looking to shape the future of this multi-billion-dollar business,?Malta Week?will bring together industry giants among the affiliates, operators, and suppliers of the gaming sector.