In response to the April increase in Remote Gambling Duty (RGD) in the UK, both online and land-based operators are reassessing their strategies and cost structures.
During iGB Live's M&A Summit in July, BDO's corporate finance director Ollie Woodward discussed how many operators are now focusing on the long-term viability of their player base.
Last week, Entain announced a significant restructuring, potentially leading to the elimination of up to 500 global positions, although the company insisted that the changes were not directly linked to the tax increase.
Conversely, Bally's Intralot has approached the tax hike as a strategic opportunity. They completed an acquisition of Evoke, which had been struggling, as CEO Robeson Reeves noted in April that this acquisition would bolster its European expansion efforts.
Operators are prioritizing restructuring and M&A strategies in today's UK market, and Woodward indicated that discussions around these topics are largely occupying BDO's gaming M&A team's time.
Clients are increasingly asking how to optimize their cost bases, with many feeling that maintaining resilience during this period will allow them to capitalize on market shifts, particularly as smaller competitors may struggle with the new tax regulations. "A balancing act ensues, as larger players reassess their workforce and technology to find ways to right-size and enhance their margins," Woodward explained.
Currently, BDO's M&A division is collaborating with about five or six UK gambling businesses involved in significant transactions across both online and land-based sectors.
As operators adapt post-RGD hike, understanding the evolution of player demographics is essential. This includes analyzing return-to-player (RTP) rates and marketing expenditures. Woodward emphasized, "Ultimately, it comes down to the sustainability of your earnings and player base."
Despite the pressure on profit margins from the RGD increase, Woodward noted a prevailing spirit of "resilience and bullishness" among clients as they seek ways to navigate the new landscape.
Additionally, at the BDO panel during the iGB Live M&A Summit, Woodward stressed the critical nature of distinguishing between regulated and unregulated revenue in the current M&A environment. Companies are finding that buyers are favoring opportunities that strictly adhere to regulatory standards.
Notable organizations such as Bet365 and Yolo Group have actively reduced their involvement in unregulated markets in recent times, demonstrating this shift.
In discussions about reporting unregulated revenue during the due diligence phase, Woodward pointed out the importance of legally isolating these operations for prospective sales or restructurings. He noted that many businesses currently lack clear reporting standards needed to easily separate these operational metrics.
He further clarified that regulated revenues are considered significantly more appealing within today's M&A context. "They offer easier exit strategies and attract higher valuations," he observed.
The industry's major players are increasingly moving toward achieving at least 90% of their revenues from regulated sources, highlighting a growing divide among operators regarding their regulatory compliance.
Companies with historical unregulated revenue may not be automatically excluded from potential deals, as the nature of their operations plays a crucial role. Woodward mentioned that past management decisions, such as whether operations were based in legally ambiguous territories prior to regulation, will be examined closely by potential buyers.
"Investors want to understand the context behind past decisions and whether companies acted proactively when the market evolved toward regulation," Woodward concluded.
