As UK operators adjust to the Remote Gambling Duty increase that took effect in April, both online and land-based gaming companies are reassessing their strategies and cost structures. Ollie Woodward, a corporate finance director at BDO, shared insights during the M&A Summit held at iGB Live in July, highlighting that many operators are focusing on the sustainability of their player bases.
Entain recently revealed an extensive restructuring plan, potentially leading to up to 500 job cuts worldwide. The company clarified that this decision was not directly linked to the newly implemented UK tax hike.
Conversely, Bally’s Intralot has seized the opportunity presented by the tax increase. They acquired Evoke after the latter faced various challenges, including its struggle to adapt to the tax change. Robeson Reeves, the CEO of Bally’s Intralot, stated in April that this acquisition supports the company's plans for European expansion.
Woodward noted that restructuring and mergers are now high-priority topics for companies navigating the current UK market environment. Conversations with clients largely revolve around reevaluating operational costs. He explained, “Clients are asking ‘how do we look at our cost base and right size that?’ It's a balancing act. Many operators believe that staying robust during this period may open doors in the market, especially as smaller companies may struggle with these tax changes.”
"The tax increase comes at a time when many businesses were already contemplating their cost structures from an AI perspective. Some of the larger players are meticulously reviewing their workforce and technology, asking how they can evolve and streamline operations to realize efficiency gains," he added.
Currently, the BDO M&A team is engaged with about five to six UK gambling firms involved in significant transaction processes, spanning both B2C online and land-based sectors, as well as online suppliers. “Some are looking beyond the UK, with markets like Alberta in Canada going online, prompting discussions about exploring new growth areas,” Woodward stated.
Assessing the evolution of player demographics is another critical focus for operators in the landscape shaped by the tax increase. This assessment involves understanding return-to-player (RTP) rates alongside marketing strategies and budgets. Woodward commented, “Ultimately, it comes down to the sustainability of your earnings and your player base.” Although the duty hike has impacted profit margins across the sector, the prevailing sentiment among clients is one of resilience and optimism as they explore strategies to mitigate the financial pressure.
During a panel discussion at the iGB Live M&A Summit, Woodward emphasized the significance of distinguishing between regulated and unregulated revenues in today’s M&A context. Buyers increasingly favor opportunities heavily regulated, making it critical for sellers to report their unregulated revenue transparently.
Notable players like Bet365 and Yolo Group have been scaling back their operations in black or grey markets over the past year, and during the panel, Woodward elucidated the complexities involved in reporting unregulated revenue during due diligence. The first vital question for companies is, “from a legal and structuring perspective, can you ring-fence those operations during a sale or carve-out?” He added, “If not, separating those operations can be challenging.”
Moreover, businesses often lack the detailed reporting structures necessary to easily differentiate unregulated revenue streams. Understanding the unique value of various parts of their operations can introduce further complexity in these discussions.
Woodward acknowledged that, in the current M&A environment, regulated revenues are seen as more appealing. “They’re easier to exit and command higher valuation multiples. Many major groups are moving toward having 90% or more of their revenues being regulated,” he explained, highlighting a significant shift within the operator landscape.
From a reputational standpoint, companies with historical unregulated operations won’t necessarily be ruled out of potential transactions. However, Woodward shared that assessors will closely examine the nature of these activities, particularly whether they pertained to grey markets prior to formal regulation and how companies behaved once licensing was established. “People want to understand the decision-making that led to those past operations and how management responded when regulations were implemented,” he concluded.
