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Mergers and acquisitions experts are predicting that Brazil's incoming regulatory regime will “create room for a much longer tail” and be better for competition and innovation compared to the US market.
“In the US and Brazil, you have similar sports fanatics, and highly engaged audiences, both really like gambling,” said James Liddy, the head of gaming, lodging and leisure investments for Jefferies International.
“The big difference is the one regulatory regime in Brazil and 52 regulatory regimes in the US. That is the one curiosity with the US market that has made it fiendishly complex, and fiendishly expensive to be successful. It is one product being consumed nationally, but so many fragmented regulatory regimes make it super expensive to compete,” Liddy said during a panel at SBC Lisbon on September 26.
Peter Heneghan, a senior associate at Bettor Capital, explained that three to four years ago everyone was talking about the US, but since then many European operators have left the market in favour of focusing on Brazil to higher growth markets.
Despite the potential fruitfulness of the Brazilian market, Heneghan would “bet a lot” that fewer than 100 operators will be successful in Brazil.
“Certainly, a handful of operators hash out success in the pre-regulated market and I believe that will continue, but things are going to get more difficult as regulation comes in, as there is greater institutional capital and greater global focus on the market,” said Heneghan.
There is also a “unique” model emerging in Brazil, according to Heneghan, “that we have not seen in the same way in other markets”.
“Experienced successful operators from outside the market are partnering with companies in the market that are not necessarily in the gambling business. MGM has a partnership with a massive media company. Others have taken a similar strategy of partnering with well-placed organisations that have good government relations or scale and distribution or technology,” said Heneghan.
He believes more of this will be seen as Brazil’s market launches.
But it is not just Brazil that is catching the eyes of investors at the moment.
Liddy said that since the Italian market has “stabilised”, it has spurred on more M&A activity, such as Flutter buying Snaitech.
“In the market, the regulation has fundamentally benefitted the incumbent operators because ad restrictions then make it very investable, because it's highly profitable and very stable,” Liddy said.
Adam Rosenberg, a senior advisor in Blackstone’s gaming and leisure department, highlighted a host of new major land-based opportunities in Japan, Thailand and the United Arab Emirates that will help “create a global system of social acceptance of gameplay and gambling as a form of entertainment and ultimately will create new growth opportunities”.
Adam Rivers, a managing director at Alvarez & Marshal’s corporate transformation services, believes that lower operator margins in many jurisdictions and other economic indicators suggest that one market that will “see more activity” is “some form of vertical integration”.
“It's just a case of where, why and who. My expectation going forward is that we will continue to see [M&A],” River said, adding that most upcoming acquisitions will be smaller in nature.
“Little transactions like some of the DraftKings ones we've seen where they are taking out valuable players in the value chain and hoping they can build from it. Perhaps the acquisition of slot studios. Will it be the key growth area? Probably not. But I do think we will see more activity,” Rivers said.
One vertical that is becoming increasingly attractive is B2B suppliers, according to Liddy, who sees the sector as a “quite opaque and unregulated space” that will “evolve” in the coming years.
“How it evolves in the coming years will be fascinating to watch. There are some very successful B2Bs that are very profitable,” Liddy said.
Vixio's Online Gambling M&A Monitor has tracked 27 announced acquisitions of B2C and B2B online gambling companies and brands during the first nine months of 2024, up from 23 in 2023.
Deals announced in the year-to-date include the pending acquisition of Kindred Group by Française des Jeux (FDJ) and Flutter Entertainment's recently announced moves for Snaitech in Italy and a majority share of NSX Group, owner of the Brazilian brand Betnacional.
