In his first monthly column for iGaming Business, RB Capital’ s Ben Robinson digs into the data to identify how the transition to regulated markets is driving sector M & A strategies

It’ s the age-old question that the industry has always grappled with: white or grey, which one is going to give us the best( risk-adjusted) return?

More countries, particularly across Europe, are now closing their borders to offshore operators and introducing licensing and tax frameworks. Consequently, the industry is being gradually coaxed into abandoning its‘ darker’ market activities in favour of expanding white market portfolios which drive more visible and investorfriendly regulated revenues.

With more markets choosing to follow the likes of Italy, Spain and Denmark, this regulated land grab has come at a price. However you look at it, regulation is an expensive activity. Companies require additional funds and resources to pay for new licences, local partnership agreements, suppliers, tax bills and staff – and then there are the endless, eyewatering legal and consultancy fees used to smooth the processes.

But has this put companies off from investing in regulated businesses and pushed them towards arguably riskier opportunities? As we know, the industry’ s appetite for risk isn’ t restricted to the products it develops for players. Many successful operators and their founders have been richly rewarded for treading a fine regulatory line over the years.

But even the more prominent exponents in the space – namely GVC, a listed business which for many years built its business in grey markets, and PokerStars, which emerged relatively unscathed from the Black Friday Department of Justice indictments in 2011 – have fallen for the lure of regulatory earnings in recent times.

Ben Robinson is co-founder of boutique advisory firm RB Capital, focused on the igaming, fintech and media sectors. RB Capital works with start-ups and scale-ups looking to raise capital, and with established businesses looking to take their business to the next level or initiate a liquidity event.

Numbers speak for themselves According to RB Capital’ s M & A Monitor, over the last three and half years a staggering £ 10bn has been spent on regulated market acquisitions( classified as those conducting a minimum 50 % of their business in regulated territories), with the two largest transactions( GVC – Ladbrokes Coral and PokerStars – Sky Bet) both announced and completed in 2018( see below).

These two deals may have skewed the trend somewhat, but even when the transactions are excluded the figures are huge. In just 40 months a whopping £ 1.3bn was spent buying up businesses mainly focused in regulated markets.

On the flipside, unregulated company M & A( classified as that focused on companies with less than 50 % of their business regulated at the point-of-consumption) has also continued at a steady pace. However, deal flow and deal value diminished over the assessment period, with just over £ 700m in‘ grey’ transactions taking place between 2015 and today( see overleaf).

The anomaly here has been the affiliate sector – with two significant trends emerging.

Regulated M & A deals( 2015 to June 2018)