As a result of maturing of the online gaming industry, the number of merger & acquisition transactions is on the increase. While commercial considerations are obviously on the top of the agenda in any such transaction, one should also ensure that compliance matters are taken into account.
When a Malta-licensed remote gaming operator is involved in a merger or an acquisition, whether as a seller or purchaser, one has to ensure that the entity that will continue remote gaming operation post-transaction has necessary approvals of the Lotteries and Gaming Authority (LGA) – the regulator. The law requires prior approval of the LGA for any sale of business of a remote gaming licensee and for every merger, reconstruction or similar transaction. Every new equity holder of at least 5% of the post-transaction operational company must be approved by the LGA before the transaction is completed. While the law is not entirely clear on this point, in our view, the above requirement applies not only to direct shareholders, but also to those who will hold shares via other entities, so that every ultimate beneficial owner of at least 5% of the operational company must be approved in advance; however, the approval formalities are reduced in case of listed companies.
In cases where the transaction is structured as a sale of business assets or sale of a going concern, in addition to the prior approval of all new shareholders of the post-transaction operational company, one must ensure the continuance of the remote gaming licence. Under the Remote Gaming Regulations (Reg.11), the licence is not assignable or transferrable without the prior written consent of the LGA. Accordingly, the parties to the transaction should obtain such approval, which can in the form of be either a transfer of the licence or a grant of a new licence. Violating this requirement will expose the acquirer to the risk of closure of the operation and cancellation of the licence.
A merger or an acquisition may be quite a complex transaction usually accomplished in a number of stages, which is finalised on a pre-agreed date of completion, after all prerequisites for the completion are fulfilled. It is clear that the transaction agreement between the parties should necessarily include, in the list of conditions precedent to completion, the necessary LGA approvals.
It is vital for the acquirer of a remote gaming operation to ensure that the licence used by the operational company and which will be relied upon post-transaction, covers the complete gaming operation. Unfortunately, the licence document itself does not give sufficient comfort to the acquirer, as it does not provide any detail of the approved operation, except for stating the class of licence and possibly a few other matters. Accordingly, the seller’s disclosures and the warranties related to the licence should be considered an important part of the transaction agreement. The disclosures should ideally include a detailed description of the approved operation or contain all submissions made to and approved by the LGA; while the warranties should include a warranty that the complete de facto gaming operation is covered by the licence, and, in particular, that all games, all employees and all business partners have been approved by the LGA. It is these contractual disclosures and warranties that the acquirer will rely upon in case any licence or regulatory deficiency transpires post-transaction.
In the course of a transaction, one should also evaluate whether notification to the Malta or other jurisdiction competition (anti-trust) authorities is required under applicable merger control regulations. In Malta, such matters are regulated by the Control of Concentrations Regulations (CCR) by the Director of the Office of Fair Competition (OFC). Any transaction which involves either a merger of two or more undertakings that were previously independent from each other or an acquisition by one or more undertakings (whether by purchase of securities or assets) of direct or indirect control of the whole or parts of another one or more undertakings (within Malta or outside Malta) is considered as a ‘concentration’ and falls under the CCR if (a) the aggregate turnover in Malta of all the undertakings concerned in the preceding final year exceeded €2,330,000 and (b) each of the undertakings in the preceding final year had in Malta at least 10% of the combined aggregate turnover of all the undertakings concerned.
If the above two criteria are satisfied, then the parties must notify the proposed transaction to the OFC prior to its implementation. It will be up to the OFC to determine whether the proposed transaction is prohibited, which can only occur if the transaction is considered as leading to a substantial lessening of competition in Malta relevant market. While in most (if not all) instances for remote gaming companies based in Malta the above will not be the case and, therefore, the transaction will not be prohibited, one has to keep in mind that a prior notification to OFC and obtaining the relevant clearance may still be required. It is recommended that competition law notification/clearance is also included, where relevant, in the condition precedent of the transaction agreement.
Since specific steps, approvals or measures, that may be required, depend on the facts of the particular transaction, it is always advisable to seek legal assistance to ensure that all compliance issues are properly dealt with, so as not to prejudice the commercial value of the transaction.
First Published in
EGR Magazine, E-Gaming Review 2009