Dr. Stefan Tweraser, CEO of Zeal, asserted on an investor call held on July 9 that the company’s established reputation for compliance in the heavily regulated German market will support its move into the UK’s prize-draw sector. Tweraser predicts that the UK will adopt stricter regulations in this space, aligning with the company’s experience in Germany.
Zeal's recent acquisition of UK prize draw operator Seven Canyon, announced earlier in the week, signifies its first foray beyond Germany, a step hinted at during Zeal's FY25 earnings report in March. Tweraser remarked that the operator has flourished in Germany’s strict regulatory climate and expects the UK’s prize-draw sector to follow suit.
"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," Tweraser said. He highlighted that this environment is beneficial for well-capitalized operators like Zeal, which possesses the necessary infrastructure and strong compliance capabilities.
Currently, the UK operates its prize draw market outside the traditional lottery regulations, relying instead on a voluntary code of conduct established in May aimed at enhancing player protection. Tweraser praised Seven Canyon for its significant role in promoting this voluntary framework during the call.
According to a report by Rokker published in April, Britain's prize draw market is estimated to produce around £1.3 billion in annual revenue, attracting approximately 7.4 million active players.
Industry observers have pointed out that the absence of strict regulations is advantageous for both new players and traditional iGaming companies looking to enter this market. Jamie Pinner, a senior leader at DrawHouse, remarked in May that the lack of Remote Gaming Duty on prize draws currently presents a more efficient revenue stream compared to sportsbooks or casinos.
Zeal portrays its acquisition as part of a strategic initiative rather than a mere opportunistic move, with Tweraser emphasizing the rapid growth and fragmentation of the prize-draw market, which includes over 400 operators. Last year, Seven Canyon generated around £99 million in billings, with gross gaming revenue figures aligning closely with Zeal’s reporting standards amounting to roughly £30 million.
Seven Canyon has proven to be a profitable entity, reporting a significant EBITDA exceeding £10 million in its most recent financial year, as noted by Zeal's CFO Andrea Behrendt. The acquisition has synergies, including leveraging Zeal’s customer relationship management capabilities and its experience in large-scale raffle operations to boost Seven Canyon’s prize draws.
Financially, the agreement entails a cash payment of £33.9 million upon closing, with an added potential earn-out of up to £4.8 million based on performance targets to be met within six months. Also included are Seven Canyon’s prize assets, such as cars and cash. To fund this acquisition, Zeal secured a €40 million loan from Deutsche Bank, complemented by a smaller intercompany loan.
Behrendt stated that the deal would elevate Zeal's external debt to about €100 million, while cash reserves remain substantial. "You know that we are a strong cash-generating business, with a post-transaction balance of around €70 million," she stated.
Zeal anticipates that the acquisition will positively impact its EBITDA, projecting an increase into the high single-digit million-euro range in the first full year post-integration.
Tweraser revealed that the original founders of Seven Canyon are expected to exit within six months after the completion of the acquisition. A successor from within Zeal has already been identified to lead the operations. "His name is Alex Green. He has a very strong track record in the UK market, knowing the UK lottery market for more than two decades already," Tweraser noted.
Following the acquisition, Seven Canyon will function as a semi-autonomous unit, adhering to Zeal’s ‘business owner’ model, which aims to retain its entrepreneurial drive while benefiting from Zeal’s shared compliance, financial, and technological resources.
