As the implications of the April Remote Gambling Duty hike in the UK begin to take shape, operators in both the online and physical gambling sectors are reassessing their strategies and costs. Ollie Woodward, a corporate finance director at BDO, shared insights during the iGB Live M&A Summit in July, noting that sustainability of the player base is a key focus for many operators.
Entain recently announced a substantial restructuring plan, which could lead to the elimination of up to 500 roles worldwide. The company clarified that this move was not a direct reaction to the tax increase.
Conversely, companies like Bally’s Intralot are viewing the tax hike as a chance for growth. After recognizing struggles at Evoke related to the new tax conditions, Bally’s Intralot acquired the company, a strategic move supported by CEO Robeson Reeves to bolster their expansion in Europe.
Restructuring and mergers and acquisitions (M&A) have become major priorities for operators trying to thrive in the current UK gambling market. Woodward mentioned that BDO’s gaming M&A team is heavily engaged with several UK gambling businesses involved in significant transactions across the B2C online and brick-and-mortar sectors, as well as the online suppliers.
Some operators are also exploring new markets beyond the UK, with Alberta’s recent move to online gambling attracting interest.
Another critical focus for operators in the wake of the tax hike is the evolution of player cohorts. Woodward emphasized the importance of assessing various factors such as return-to-player (RTP) rates and marketing strategies, which are vital for sustaining earnings and maintaining a strong player base.
While the tax increase has tightened margins across the sector, Woodward noted a prevailing sentiment of resilience among clients as they seek innovative solutions to manage the pressure.
During a panel at the iGB Live M&A Summit, Woodward underscored the crucial need for accurate reporting of regulated vs. unregulated revenues in the M&A arena. As buyers increasingly favor highly regulated opportunities, companies with unregulated revenues must be able to delineate those operations effectively.
Noteworthy industry figures like Bet365 and Yolo Group have been actively reducing their engagement in unregulated markets, signaling a shift in focus.
When queried about the process for reporting unregulated revenue during transactions, Woodward stated that a fundamental concern is whether a business can separate these operations for a potential sale or restructuring effort. The challenge often lies in the fact that many companies do not reliably track their KPIs in a manner that aids such separation.
In the current M&A environment, regulated revenues are seen as more appealing due to their ease of exit and higher valuation multiples. Woodward acknowledged a trend where larger firms are moving towards securing 90% or more of their revenues from regulated markets.
While past associations with unregulated operations do not automatically disqualify businesses from deals, the nature of these operations is critically examined. Factors such as a company's response to evolving regulations can shape perceptions significantly, with management decisions made during earlier operational phases being closely scrutinized.
