As operators in the UK continue to absorb the implications of the April Remote Gambling Duty increase, both online and land-based companies are re-assessing their market strategies and cost structures.
At the iGB Live M&A Summit in July, Ollie Woodward, corporate finance director at BDO, noted that many operators are focusing on the sustainability of their player bases.
Recently, Entain announced a significant restructuring that may lead to the elimination of up to 500 jobs globally. The company clarified that this overhaul was not a direct response to the UK tax hike.
Conversely, Bally's Intralot is approaching the tax increase as a strategic opportunity. After Evoke reported difficulties in adapting to the new taxation, Bally's Intralot moved to acquire the operator. CEO Robeson Reeves highlighted that this acquisition aligns with the company’s plans for European expansion.
With the changing landscape, restructuring and mergers and acquisitions are becoming primary focal points for operators in the UK. Woodward explained that discussions regarding cost assessments are prevalent within BDO's gaming M&A team as they engage with approximately five to six UK gambling businesses involved in major transactional processes across both B2C online and land-based sectors.
He indicated that some operators are also exploring potential growth in markets beyond the UK, specifically pointing to Alberta, Canada, which is now offering online gambling options.
Understanding the evolving dynamics of player cohorts is critical for operators in the aftermath of the Remote Gambling Duty increase. Woodward emphasized that companies are considering factors such as return-to-player (RTP) rates and their overall marketing strategies to ensure long-term sustainability of earnings and player retention.
Despite the pressure on sector margins due to the tax changes, Woodward observed a prevailing sentiment of resilience and optimism amongst clients as they look for ways to mitigate these challenges.
During a panel discussion at the iGB Live M&A Summit, Woodward highlighted the increasing significance of differentiating between regulated and unregulated revenue streams in the current M&A landscape. From a sell-side perspective, potential buyers are favoring highly regulated business models.
Noteworthy industry players, including Bet365 and Yolo Group, have been reducing their involvement with unregulated markets over the past year. Woodward remarked that companies must ask critical questions regarding the legal and structural ability to segregate unregulated operations when undergoing a sale or restructuring.
He added that many businesses do not have systems in place to report on key performance indicators at a level that allows for easy separation of these operations. Understanding the value associated with different business segments is essential.
In the context of mergers and acquisitions, regulated revenues are becoming increasingly appealing as they attract higher multiples and present easier exit strategies. Many major firms are shifting towards having at least 90% of their revenues derived from regulated markets.
Woodward noted that having a history of unregulated revenues does not automatically disqualify a company from M&A opportunities; rather, the nature of those operations, such as whether they transitioned to regulated markets upon legalization, is crucial.
