Mergers and acquisitions in the global gambling industry will be driven by geographic and product diversification, as newly-regulated markets open and mega deals dry up, according to a panel of collected by VIXIO and PwC.
The impact of COVID-19 has shone a light on the need for a diverse portfolio of products, said Christine Zhou, vice president of equity research with RBC Capital Markets in London.
Zhou expects the online gambling industry to have a “V-shaped” recovery, but was shocked just how quickly various sectors appeared to bounce back from the initial impact of the pandemic, in particular those affected by the global sports shutdown.
Despite the quick recovery, rising COVID-19 cases in the United States and Europe mean the possibility for future sports cancellations and retail closures cannot be ignored, she said.
Zhou said the uncertainty means diversification will “continue to drive M&A”, along with the need to fill gaming portfolios and enter new high-growth regulated markets.
David Trunkfield, PwC’s hospitality and leisure lead, agreed, adding “diversification is more prominent on people’s radar now, as investors are likely to look more favourably at those businesses”.
The panellists said it was likely the industry had seen the end of the UK’s “mega-mergers” after the completion of Flutter’s acquisition of The Stars Group reduced the number of major players in the market from five to four.
There is an opportunity for major land-based US casino operators, such as Wynn Resorts and Las Vegas Sands, to drive consolidation through their desires to move into the online gambling space, which could see a new wave of “mega mergers” across the pond in the coming years, Trunkfield said.
But numerous regulatory hurdles could slow US-focused deals, such as the costs and compliance burden of becoming regulated in each state, which “takes a lot of investment that benefits larger operators”, according to Trunkfield.
Nick Batram, GVC head of corporate development strategy, expects M&A to pick up despite challenges faced by the retail sector around the world, led by the need to innovate, acquire new technologies and enter into secure regulated markets.
“Our business has transformed over the past few years; 95 percent of our revenues now come from regulated markets. You won’t see us entering into unregulated markets; it’s not what we are about,” Batram said.
When it comes to Latin America, Batram said there are various language and cultural barriers, but GVC is “always looking for established local partners” and “clarity with M&A comes with clarity of the market conditions”.
There are also still opportunities for so-called “bolt-on” deals in Europe, as well as cross-jurisdictional purchases, such as William Hill’s acquisition of Mr Green, according to Trunkfield, who highlighted strong local operators in the Greek, Italian and Spanish domestic markets with valuable local knowledge.