INSIGHT
HUNTING THE BIG PL AYS
The year so far has seen a boom in M & A but there is plenty more business to be done. Julian Buhagiar surveys the affiliate-sales market.
THE AFFILIATE MARKET has been an increasingly active target for buyers throughout the majority of 2018. RB Capital has managed some of the largest deals by size and volume, some of which have attracted buyers outside the gaming market for the first time.
Ahead of assessing the outlook on acquisitions for the short to medium term, it is worth looking back at the past 12 months to see why 2018 has really been a special year on the M & A front, even more so in the affiliate market.
By the end of June, the overall deal size of affiliate acquisitions had already surpassed the entirety of acquisition deals for 2017. So not only have deals increased in value this year, they have been increasing at an accelerated rate. The current deal momentum in the affiliate space is the highest it has ever been.
This is especially of note when considering that an overwhelming majority of the acquisitions are affected by the same buyers, largely publicly listed entities. Given that the market capitalisation for these buyers is relatively easy to determine, such acquisitions become a crucial determining factor for future share price. In other words, the( publicly listed buyer’ s) rationale for acquiring a specific asset is based on the calculated expected increase in share price, as opposed to the perceived net returns that such an asset will contribute to the business.
This perception fundamentally changes the buyer’ s target list of ideal acquisitions, as well as the conditions for sale. For instance, the earnout factor( that is, the portion of a sale that’ s paid out over time depending on the seller’ s ability to reach specific targets) has substantially increased
“Affiliate acquisitions are expected to continue at the same rate for the next 18 to 24 months and well into 2020” in the last 12 months, as have the underlying criteria to satisfy such earnouts. Similarly, the amount of transactions involving a mixture of cash and share swaps has also started to change the affiliate M & A landscape.
What’ s particularly interesting is the relative distribution of affiliate acquisitions across regulated, partially regulated and non-regulated markets. The split in regulated vs non-regulated sales( bearing in mind that the lesserregulated sales rarely make the press; thus, factoring in those transactions that RB Capital is familiar with and / or has managed) is overwhelmingly increasing in favour of regulated markets( see chart). While the proportion of sales of affiliates in fully non-regulated markets has remained relatively constant over the last four to five years, there is a notable decrease in sales across partially regulated markets.
The reasons here are clear. Partly regulated markets are likely to become fully regulated in the short term,
iGB Affiliate Issue 71 OCT / NOV 2018
59