Whilst the global economy is heading down the proverbial bumpy road to recovery from the pandemic, Continent 8 Technologies’ David Black believes that there is still a growing appetite for “game-changing mergers” that could ultimately reshape the betting and gaming industry.
Speaking to SBC Americas, the Managing Director – EMEA discusses the surge in M&A over recent years and the increasing assimilation of betting and entertainment content.
The M&A landscape is red hot right now. Do you expect this to continue throughout the rest of the year and into 2023?
For me, stating the M&A landscape is “red hot right now” implies that it hasn’t been for the last few years, which is not the case. This is an industry that has been consolidating at pace for quite some time now, although the volume and value of the deals we have seen over the past 12 months has been quite remarkable – for example, DraftKings’ bid of $20bn for Entain. Other big deals include Penn National’s $2bn acquisition of theScore and Bally’s $2bn takeover of Gamesys.
Of course, the global economy seems to be traveling down a bit of a bumpy road right now but in my experience, there is always money for the right deal and there will undoubtedly be a number of game-changing mergers and acquisitions that will reshape the industry over the next 12-24 months. This is certainly the case for the US market where companies are looking to acquire their way to market share or buying where it is more effective than building.
What is driving this surge in M&A? Does it have anything to do with the assimilation of betting and entertainment companies?
It has a lot to do with economies of scale, especially for businesses in regulated markets such as the US that can and do become saturated incredibly quickly. The cost of player acquisition is at an all-time high but we may now see US operators slow marketing spend in order to achieve profitability faster.
Of course, if company A has a marketing budget of X and company B has a marketing budget of Y and those businesses merge or one acquires the other, the combined buying power is far greater than it is individually.
The same philosophy applies to other areas of operation such as compliance, payments and infrastructure. In addition, other contributing factors include the ability to buy market share and access technologies and systems without the need to build them from the ground up.
In terms of assimilation between betting and entertainment, this is something we are seeing. Player profiles, a leisure mindset and spend, together with the drive for market share, suggest the two industries are by business structure assimilating and that can be seen with companies such as Disney looking to get in on the sports betting action. The same can be said for DAZN with the launch of DAZN Bet in the UK with plans to roll out in other markets including Ontario.
Is the US the most fertile ground for M&A? Or are there plenty of opportunities in other markets? If so, where?
If you look at the valuations coming out of the US then yes, it could be considered the most fertile ground for M&A activity. Current valuations are frankly enormous, but so too is the level of spend which seems to suit companies with public currency and big aspirations for the market. Whether these valuations and levels of spend are sustainable remains to be seen.
But there are also plenty of opportunities in other markets that companies are keen to explore with Eastern and Central Europe a key focus – take Entain’s €600m acquisition of Croatia’s SuperSport as a case in point. Then there is South Africa where operators such as BetFred have looked to establish themselves in the region through acquisition – the operator recently took a majority stake in South African online betting company, LottoStar.
So, in short, the US is a hotbed for M&A at the moment but with sky-high valuations, while the rest of the world provides plenty of opportunities for good deals to be made and especially for those looking to gain access to new and emerging markets.
Are there acquisition opportunities in the B2B space too? What is the current state of play here?
Yes, there are, especially when it comes to gaining access to a particular system, product or solution such as software, IP, branding or content rights. The B2B space is full of smart, hungry companies that are lean and nimble and can truly push the boundaries. These companies often find themselves on the radars of the B2B supplier giants, as evidenced by Evolution Gaming’s recent spending spree with its acquisitions of Big Time Gaming and NoLimit City.
We are also seeing a growing number of operators acquiring game studios as a way to develop their own content in-house, so this really is an exciting space when it comes to M&A.
What infrastructure/technology considerations do companies need to give to ensure a smooth takeover and post-merger?
There are a few things to consider here and one of the most important is security. A merger or acquisition is essentially the coming together of two businesses, and when that happens, it is vital not to leave the back door unlocked and open.
All businesses in the igaming space should have comprehensive security solutions in place; this means taking a layered approach with defenses such as DDoS, WAAP, SIEM/SOC and EDR/MDR working together to protect an organization. This then goes down the stack from security to network, real estate, etc.
Both companies will want to unlock cost efficiencies, but this must dovetail with regulation and compliance. And that is why it is important to start working with an infrastructure partner sooner rather than later. They can help devise a plan for the merger/acquisition and help to drive the most value.
How can Continent 8 support companies that are acquiring or being acquired?
Continent 8 is experienced in working with companies that have merged or been acquired. With our nearly 25 years of experience in the industry, a globally connected network of 85+ locations including 24 US states, coupled with our customer base, we are in a unique position to support operators, suppliers and other stakeholders.
For example, we work with more than 80% of the EGR US Power Ranking brands, so it’s likely that we have many of the organizations on our books already, therefore making it easier and far smoother to support a merger or acquisition.
This is why we were able to create the Gaming Exchange, a private network and exclusive community exchange for igaming businesses. It allows them to connect faster and more securely than via the standard internet, with no need for additional configuration. It means Continent 8 customers can connect directly to other Continent 8 customers via an MPLS Layer 3 VPN across our private backbone network rather than route over the public internet.
This is incredibly beneficial for example when companies are merging, entering markets with a clear exit strategy to reduce transaction costs and ease post-deal integration, or seeking to securely and easily push content.
We have become the infrastructure provider of choice for the industry’s leading operators and suppliers and especially those looking to leverage the huge opportunities on the table in North America and further afield.