Mergers and acquisitions take off in the UK online gambling market

The UK M&A market is hot and is expected to continue into 2019 with many more deals, as we discover in this piece.

Just how ripe is the online gambling market in the UK? As profits rise and more punters are attracted to online gambling it is suffice to say that the opportunities in the market are growing, and growing fast. One way to spot this growth is through the rise of mergers and acquisitions of UK online gambling companies. In today’s piece, we take a look at some current case studies of mergers and acquisitions across the past few years within the UK online gambling industry.

The UK M&A market is hot and is expected to continue into 2019 with many more deals.

Online gambling industry figures in the UK and abroad

Online gambling is now the largest sector in the gambling industry in the UK according to the Gambling Commission statistics, which place online gambling at taking a 33 per cent slice of the gambling market pie. The largest revenue in online gambling comes from casino games, where between April 2015 and March 2016, revenue reached £2.6 billion. Even when new operators regularly enter the market, there is a lot of money to be made in this niche area.

A PwC 2017 report on online gambling, ‘Not a zero sum game: Why online gambling can be an opportunity, not a threat, for the ‘bricks and mortar’ industry’, puts the online betting industry worldwide at generating $38 billion a year, accounting for 11 per cent of gambling related revenue overall – and growing. The customer base of online gambling houses in the UK reports a more educated, younger demographic, as compared to gambling in venues in real life.

Furthermore, in a report by EGR for Acapture, the UK online gaming market grew by 16.9 per cent just over the year of Q1 2015 to Q1 2016, and the amount of revenue attributed to mobile online gambling (as a percentage with desktop) was at 80 per cent, indicating punters are extremely interested in on-the-go betting. The report goes on to state that the UK is the largest e-gaming market in Europe – and so offers good market prospects for growth and opportunity.

Case study 1: Betsson AB acquires Netplay TV

In May 2016, after receiving an unsolicited purchase offer, the board of directors at Netplay TV decided to start a bidding process for the company to be sold. After a strong start to the year, with 18 per cent net revenue, the time was ripe to sell.

After a number of proposals, a deal was struck with Swedish company Betsson AB, who saw the UK as a growing market for online gambling, for a £26 million acquisition. Betsson has been in the gaming business since 1963 (and is now concentrated on online gambling). The deal went through on 31 March 2017.

One of Netplay TV’s most successful operations has been Jackpot247, an online interactive gambling website operating since 2008. After striking a deal with Virgin Media giving them shares in the company, Netplay then took over production of Challenge Jackpot (Jackpot247’s brand name at the time), acquiring Two Way Gaming Ltd assets (for £2 million worth of stock) who were running the service. The brand also has a live element, with TV segments.

Case Study 2: Paddy Power and Betfair Merger

Paddy Power, founded in 1998, rose from bricks and mortar beginnings in Ireland to become Europe’s largest bookie in 2011, diversifying with shops are the UK, telephone betting, and later, in 2007, with their online betting ventures.

Betfair, on the other hand, was a UK company established in 2000, focusing solely on online gambling, who rose to become the world’s largest online betting home.

With both companies on the rise, Paddy Power put forward a proposal to Betfair, to join in a $5 billion merger. After agreeing to the terms, in February 2016, Paddy Power Betfair was born, becoming the largest gambling powerhouse in the UK, with an industry share of 16 per cent.

It appears that the merger has paid off, too, with revenues overall for the company growing in 2016 by 18 per cent, up to £1.55 billion.

Case study 3: Ladbrokes and Coral Group merger

The Paddy Power and Betfair merger was announced off the back of the Ladbrokes and Coral group merger at around the same time, who was set to become the biggest UK gambling conglomerate had the Paddy Power and Mayfair merger not gone ahead.

Ladbrokes has been around since as far back as 1886, and have changed up their approach to bookmaking numerous times over the years. After weak online gambling profits in 2014, Ladbrokes went into talks with the Gala Coral Group, a competitor, to consolidate their businesses and maximise profits for both. The merger was completed in late 2016.

It looks like the company is doing well so far. In the first half of 2016, they have seen a 7 per cent rise in profits, buoyed by their incoming online revenue, which had a 17 per cent increase year on year.

Case study 4: CVC Capital Partners acquires SkyBet

It’s not just other betting companies that are interested in the burgeoning online gambling industry in the UK. CVC Capital Partners, a private equity firm in Luxembourg also sought to capitalise on the growing market by acquiring online gambling site SkyBet for £600 million, with an 80 per cent majority stake in the company, back in 2014.

CVC Capital Partners is one of the world’s foremost private equity firms with a diverse portfolio of investments. There are well known for growing businesses and have other gambling companies like William Hill online betting and the IG Group financial spread betting in their fold.

SkyBet was founded in 2001 and has risen as an online betting powerhouse, with its principal sports betting business alongside arms Sky Vegas & Sky Casino for casino gambling, Sky Poker, and Sky Bingo.

The CVC Acquisition was a boon for both companies. In the year to June 2016, Sky Betting and Gaming revenue increased to £373.6million, a boost of 51 per cent, after the prior year saw a raise of 36 per cent.

Case study 5: NYX Gaming Group acquires OpenBet

More offshore interest in UK based online gaming houses continued with the acquisition of London-based OpenBet by Canadian listed NYX Gaming. After an announcement in April 2016, the acquisition went through in May of 2016.

NYX offers B2B gaming solutions for their customers, with a licensing system allowing them to capitalise on over 2,000 gaming titles for distribution around the world – an end-to-end solution.
OpenBet is an online and in-venue sports betting solutions company that was founded in 1996. The OpenBet platform was seen by NYX as an excellent product to help leverage their worldwide offerings.

Again, this strategic decision has paid off with NYX revenue up 73.3 per cent year on year for the second quarter of 2017 to $61 million, attributed to OpenBet operations during the time period. William Hill also hedged their bets on this acquisition – investing £90million in NYX to help in the purchase.

And in breaking news…

GVC Holdings, a standout B2B and B2C online betting and gaming company based in the Isle of Man have failed in their latest bid to acquire the Ladbrokes Coral Group. During the negotiations, GVC had put down as much as £4.6 billion as a valuation of the company. GWC has many brands currently in their stable including bwin, Sportingbet, partypoker, and Foxy Bingo.

However, Ladbroke Coral rejected the offer, as the parties could not agree to the valuation prices of both companies.

While laws have tightened around online gambling in some niche markets in the UK, there are still a surprising amount of opportunities to be made. A clever start up may easily see rocketing revenues, opening up opportunities for a larger company such as Ladbrokes, or even a private equity investment firm, to acquire them. There is also the opportunity for solid online gaming platforms and companies to be sold to overseas investors, should the platform and set up be amenable to a similar gambling situation overseas, or even worldwide.

For those looking for an in with the online gaming market in the UK, there’s always angel investing with gambling startups, like those listed on AngelList. With less risk involved than a merger or acquisition, angel investing may provide a good introduction to the online betting start-up scene in the UK.

Once you’re familiar with the online betting landscape in the UK, and in particular the laws surrounding licensing, it makes it much easier to identify where opportunities lie and where companies are on the decline, with not much room for growth opportunities.

Whether you’re an investor or just an interested outsider, the scene for mergers and acquisitions in the online gambling industry in the UK surely is an interesting one. With such a huge market you can easily see that there are opportunities to capitalise on the popularity of online gambling – if you make the right move that is. Because it’s still a relatively new market, and can require a lot of technical knowledge both on the software/hardware side of things and the legislation side of things, this means that you should do your due diligence if you are looking into investing into the world of online gambling.

Further reading on gambling market

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Mergers & Acquisitions

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