During an investor call on July 9, Zeal CEO Dr. Stefan Tweraser emphasized that the company's solid reputation as a heavily-regulated operator in Germany would serve as an advantage as it makes its entry into the UK prize-draw market. Tweraser anticipates increased regulation in this sector going forward.
Zeal's recent acquisition of UK-based prize draw operator Seven Canyon, announced just days earlier, represents the company’s inaugural expansion beyond Germany. This move follows hints made during Zeal’s FY25 earnings call in March regarding plans to broaden their prize draws offering and penetrate a new market.
Tweraser explained that Zeal's effective operation in Germany’s stringent regulatory environment positions the company favorably as the UK market is likely to adopt stricter guidelines over time. He stated, "We expect the UK prize draw to continue moving towards more formalized rules and higher regulated standards. This should really favor us with strong experience over the last 20 years in a highly regulated market like Germany."
He elaborated, declaring, "This is an ideal environment for us as a well-capitalized consolidator with the right infrastructure and a rules-based setup. Rising standards favor operators with a strong compliance capability and market-related expertise."
Currently, the UK prize draw market operates without traditional lottery regulations, instead adhering to a voluntary code of conduct that emphasizes player protection, which was introduced in May. Tweraser noted that Seven Canyon played a significant role in advocating for this code.
According to an April report by Rokker, the prize draw market in Britain is valued at approximately £1.3 billion annually, with about 7.4 million active players. Industry experts have pointed to the lack of stringent regulation as advantageous for both new entrants and established iGaming operators considering entering this vertical.
Jamie Pinner, a senior leader at DrawHouse, mentioned in May, "One of the key advantages in the UK is that prize draws are not currently subject to Remote Gaming Duty. That makes them a far more efficient revenue stream than sportsbook or casino products, at least for the time being."
Zeal described the acquisition as part of a strategic growth initiative rather than a simple opportunistic buy. Tweraser stated, "[The UK prize-draw sector] is growing at a fast pace. It's highly fragmented with more than 400 operators, making it a prime market for us to enter as a professional player."
Seven Canyon reported nearly £99 million in billings last year, translating to about £30 million in gross gaming revenue that aligns with Zeal’s reporting standards. Zeal’s CFO, Andrea Behrendt, confirmed that Seven Canyon is already a profitable entity, revealing an EBITDA exceeding £10 million in the most recent financial year.
The acquisition was structured with a cash consideration of £33.9 million due at closing, accompanied by an earn-out clause of up to £4.8 million, contingent upon meeting specific performance goals within the subsequent six months. The deal also included Seven Canyon's prize inventory, which features cars and cash. To finance this acquisition, Zeal secured a €40 million loan from Deutsche Bank with a seven-year term, supplemented by a smaller intercompany loan.
Behrendt noted that this transaction raised Zeal’s external debt to approximately €100 million, while maintaining a substantial cash reserve. "You know that we are a strong cash-generating business, [with a] post-transaction of around €70 million," she added.
Zeal anticipates that the acquisition will have a favorable impact on its EBITDA, projecting an increase into the high single-digit million-euro range within the first full year after integrating Seven Canyon into the business.
As for leadership, Tweraser indicated that the founders of Seven Canyon would exit the business within six months post-transaction, with a successor appointed from within Zeal. He introduced Alex Green as this successor, highlighting his two years with Zeal and over two decades of expertise in the UK lottery landscape.
The acquired entity will function as a semi-autonomous unit within Zeal, adhering to a "business owner" model to sustain its entrepreneurial spirit while utilizing the parent company’s compliance, finance, and technological resources.
