iGaming Business magazine iGB 112 Sept/Oct 2018 | Page 120

Unregulated M & A deals( 2015 to June 2018)

Firstly, through rapid-fire acquisition, affiliates such as Better Collective and Catena Media have developed into global super affiliates by acquiring hundreds of leading brands and the power to pull in huge player numbers – a potentially massive headstart for operators entering any newly regulated or regulated market.

Secondly, changes in regulation, both positive( US sports betting) and negative( additional cost pressures in regulated markets), shifts in Google’ s search engine policies and the challenges of facing more scale players in the space have forced many affiliates to sell up. This is a process set to continue.

RB Capital’ s data shows that 85 regulated business transactions took place from 2015 to June 2018 compared to 35‘ unregulated’ acquisitions in the same period. It also showed, multi-billion agreements aside, the number of regulated deals increasing annually.

While unregulated dealflow has lagged behind in recent years, this segment has been the most buoyant for the affiliate sector.

2018: The tipping point This year has been by far the biggest year for regulated market deals in the history of the industry, with more agreements done in the first half of this year than the whole of 2017..

Clearly, the opening of new markets has been forcing the hand of operators and suppliers to switch lanes and grow by acquisition as opposed to organically.

Look under the hood of the deals struck in the last 12 to 18 months, however, and some interesting patterns begin to emerge.

Regulated vs. unregulated M & A

Regulated Deals

Unregulated Deals

0

12 20 24 29 Total: 85

8

8 11 7 Total: 35

Source: RB Capital M & A Monito

20 40 60 80 100

2015 2016 2017 2018

While there may be more deals in regulated markets than ever before, they are becoming increasingly structured and complex, with sellers not making as much upfront cash as they would have done a few years ago.

On the flipside, earn-out proportions and time periods are also widening. This is due to several factors. Predominantly, savvier buyers and investors have carefully studied the highs and lows of the market over many years and can now tailor their offers by product and territory.

Furthermore, there is less liquidity flowing through the system, with major buyers able to leverage the use of raised capital and shares or share-swap arrangements to buy their prized assets.

We expect transaction activity among operators to continue to intensify in the second half of 2018, with the regulated acquisition trajectory following similar, if not higher, levels for the next 18 to 24 months, whilst existing capital remains liquid or under invested.

The markets will look to public company buyer share prices to gauge how healthy the M & A market is, while private buyers will focus on unregulated markets and( safer) US assets. Merging or taking over a business with local nous, talent and rapidly growing present and projected regulated earnings has clearly been too tempting a proposition for many to resist.

But there remains another important factor driving whiter market growth, namely the saturation and gradual slowdown of large, well-established regulated markets. The UK online gaming market, for instance, was worth approximately £ 5bn in the 12 months to November 2017, but growth is now dropping off. According to figures from the British Gambling Commission, annualised revenue growth has more than halved to around 9 %, compared to 20 % between 2014 and 2016. This will only serve to increase the rate of consolidation, as several brands and suppliers will be unable to keep up.

Conversely the leaner, more agile players will be incentivised to drastically improve efficiencies and push for better products and a faster product release cycle.

In such a fiercely competitive and increasingly regulated global market, the appetite for growth has never been higher. Correspondingly the fight for prized assets will only intensify in the coming years. It’ s going to be fascinating to watch.

116 iGamingBusiness | Issue 112 | September / October 2018