M&A M&A activity could signal start of a wave of consolidation companies in 1998, when an gaming giant, Amaya, was offering Two recent proposed transactions unconditional acquisition of Coral 110p per share via a combination have highlighted what many (as it was then known) by of cash and GVC shares. analysts are predicting could be a Ladbrokes was blocked on bwin.party commented that it had wave of consolidation in the online competition grounds by Peter decided to go with 888’s offer as industry. Ladbrokes’ Mandelson, the then Business the bid from GVC, though Secretary. Although this deal containing “many attractive proposed merger with Gala Coral, clearly has a large retail dimension, features,” also carried “additional and the tussle between 888 the online opportunity available to execution risks.” Holdings plc and GVC Holdings plc the combined business is Not accepting defeat, GVC to acquire bwin.party, represent nonetheless a key strategic driver of announced in early August 2015 the merger. The July that it had made a fully-funded what many believe will be the first of announcement noted that “digital cash and share proposal to acquire a series of high-stakes M&A bets, in sportsbetting and gaming remain bwin.party at 125.5p per share, response to amongst other things the key growth opportunities in implying a value of £1.03 billion the higher taxation and increased our market and the merger enables for the company. This time, GVC is competition faced by operators, the combined entity to drive no longer involving Amaya and further online growth,” to be instead, a significant proportion of particularly as a result of the recent delivered through enhanced multi- the funding would come from US regulatory changes to the UK channel and marketing capabilities private equity investor Cerberus market. In this article, Rob Willis and across multiple brands. Ladbrokes Capital (also an investor in Gala Charles Turnham of Olswang LLP acknowledged that it has Coral). historically been slow to deliver The industry is now awaiting the examine the drivers behind these competitive products and outcome of this close fought battle deals and the lessons to be learnt. technology in the online space, and with a further announcement from announced its intention to leverage bwin.party expected imminently. Coral’s recent success in this area The Ladbrokes and Gala and deliver synergies across a larger What is driving this M&A Coral merger customer and revenue base. activity? The proposed recommended As set out in the 888/bwin.party merger between Ladbrokes and The takeover battle for announcement, consolidation in Gala Coral was announced in late bwin.party the online space is being driven by July 2015 and will, subject to The high-profile poker game for both industry growth and the competition clearance and control of bwin.party (owner of increasingly challenging operating shareholder approval, create major online gaming brands bwin, environment facing the sector. Ladbrokes Coral plc, which will be partypoker, partycasino and Foxy Central to this latter development the UK’s biggest bookmaker across and, of course, the result of a in respect of the European online the retail and online gambling significant merger itself in 2011) is, gambling industry has been the sectors, valued at £2.3 billion. In at the time of writing, ongoing much-publicised introduction of view of the fact that the combined between online gaming the point of consumption (‘PoC’) entity will control a 46% share of entertainment and solutions tax in the UK. The new tax went the UK retail gambling market, provider and live on 1 December 2014 and is clearance from the UK Sportingbet owner GVC Holdings. charged at 15% on online gaming Competition and Markets Following a formal sale process revenues derived from UK-based Authority is far from certain and, initiated by bwin.party, it was customers, irrespective of the even if received, it seems likely that announced in mid-July 2015 that location of the operator. This fiscal a significant number of leveraged the bwin.party board would be increase will be of particular buyout divestments will be recommending a cash and shares concern to operators with low required in advance of completion, offer from 888 at 104.09p per online profit margins, of which which (if approved) is expected to share, valuing the business at £898 Ladbrokes (pre-merger) is a prime occur in mid-2016. million. This recommendation example. Offshore operators will The deal echoes an earlier came notwithstanding the rival be following the progress of the iteration of an attempted proposal from GVC who, in Gibraltar Betting and Gaming combination between the two conjunction with the Canadian Association’s1 case against PoC

World Online Gambling Law Report - August 2015 07 M&A

with keen interest, after a July 2015 A further thrive against the operational It is estimated that the online decision of the UK High Court stimulus for challenges in the industry, in gaming industry generated global referred the imposition of the tax consolidation particular the new PoC regime. gross revenues of approximately to the European Court of Justice. in the global The Gibraltar-based online $34.8 billion in 2014, representing online In the UK retail space, the gaming company, which focusses 8.6% of the global gaming market. profitability of lucrative Fixed- sector is principally on UK customers, Even more significantly, the online Odds Betting Terminals has been likely to reported an increase of 22% in net sector is expected to grow to hit by the imposition of an come from gaming revenues for the first half approximately $48.6 billion by increase in Machine Gaming Duty North of 2015, with active and new 2018, implying a compound America, 4 to 25% with effect from 1 March where the casino customers up 22% and 14% annual growth rate of 8.7% . In the 2015. ’s announcement success of respectively, a performance that light of this stellar rate of growth, it in August 2015 of a one-third fall companies Chief Executive Ed Ware attributed is not surprising that the sector in 2015 half-year profits against such as to the company’s enhancements in seems set for a hectic period of Amaya and 2014 due to the payment of an Intertain CRM methodology and marketing consolidation, powered by in- additional £44 million in gaming reflects a techniques. However, a likelier bound investment from North duties illustrates the impact of strong indication of the overall direction America and a significant stockpile both of these measures. Against appetite for of travel is perhaps to be found in of PE capital. In this context, both that background, it is no surprise investment in Unibet’s acquisition of Stan James’s the Ladbrokes/Gala Coral and the the sector that William Hill was also in the online business for £19 million, bwin.party transactions can market earlier this year for some announced in July 2015. Unibet’s perhaps be seen not only as short- game-changing M&A activity intention is to enhance the term responses to an increasingly when it tabled its (ultimately profitability of the acquired challenging operating unsuccessful) £700 million business through technological environment, but additionally as takeover offer for 888. enhancements and an improved instructive lessons to the industry The importance of effective mobile offering. of the importance of market technology in the online space was A further stimulus for participants positioning themselves also a key driver in Ladbrokes’ bid consolidation in the global online advantageously for this growth for Gala Coral. The joint gaming sector is likely to come opportunity through mergers announcement emphasised Gala from North America, where the offering shared marketing and Coral’s strength in this area and success of companies such as technology expertise, a broader, signposted Ladbrokes’ plans to Amaya (owner of Pokerstars and multi-platform product offering harness this strength in order to Full Tilt Poker) and Intertain and significant cost and revenue drive the multi-channel offering of (buyer of Costa Bingo, Vera & John synergies. the combined group. and Gamesys’2 Jackpotjoy, In light of these drivers, it is Starspins and Botemania brands) Rob Willis Partner Charles Turnham Associate perhaps unsurprising that Jim reflects a strong appetite for Olswang LLP, Mullen, Ladbrokes CEO, regards investment in the sector, driven by [email protected] further consolidation in the sector its international nature and the [email protected] as “inevitable,” noting that such robust stock market performance 1. Advised by Olswang LLP. pressures mean that “operators will of Canadian online gaming 2. Advised by Olswang LLP. need to be far more efficient.” companies, as well as anticipation 3. 2015 Prequin Global Private Equity & Whilst it seems likely that the drive of future opportunities in the US Venture Capital Report, January 2015. towards consolidation in order to market. Furthermore, there are 4. H2 Gambling Capital, June 2015. offset rising costs will result in the large amounts of global capital smaller players in the UK and available for investment in the European markets being snapped sector: it is estimated that up by bigger fish (echoing the gambling-focussed private equity flurry of acquisitions of Australian funds are holding large amounts of digital operators by UK and Irish uncommitted ‘dry powder,’ with powerhouses such as Ladbrokes, US, UK and European-facing PE William Hill and in gaming funds holding circa £18.9 2013-14), the example of 32 Red billion, £11.6 billion and £13.8 plc illustrates that there remains billion respectively as at January hope that smaller operators can 20153.

08 World Online Gambling Law Report - August 2015