Joseph Borg, senior advisor, and Robert Zammit, senior associate, have recently written an article in the eGaming Review magazine. The publication was circulated at ICE Totally Gaming, London, which is the largest gaming expo in Europe.
In past years, we have witnessed a steady increase of mergers and acquisitions (M&As) in the gaming industry. This is a result of a number of factors that include saturation of the market, cost cutting, as well as the continued fragmentation of the European market due to the ever-increasing number of national authorisation regimes.
The mergers of Betfair and Paddy Power, as well as the one between Ladbrokes and Gala Coral, are only two of the more recent mergers that we have experienced over the past few months. According to estimates, the former merger will save the involved parties around £50M per year and will allow the group to enlist in the FTSE 100 of the London Stock Exchange. We have also seen a number of acquisitions including those of Jackpot Joy by Intertain, Stan James by Unibet, and the takeover of bwin.party by GVC, which succeeded to outbid 888 with a £1.1Bn proposal.
Interestingly, such M&As are not only reshaping the corporate structures of the industry players but, in some cases, are also changing the market strategies of the parties involved. For example, it is likely that following the takeover bwin will change its strategies towards unregulated grey markets, reversing its decision to solely target regulated markets. The increased costs in regulated markets are making these less profitable while grey markets are still cheaper to target and offer higher returns.
Over the past years we have also observed a number of takeovers between smaller players in which we have noticed larger operators buying niche operators that were strong in specific markets, thus making market entry for the larger operators easier and faster. We have also seen takeovers of start-ups that went on to develop proprietary software and specialised products. While this may be obvious for larger players, we feel it is important to point out that when embarking on M&As, the parties involved must ensure to follow the necessary procedures and that the deal is done in compliance with the laws and regulations of the jurisdictions where the parties are licensed. This has become even more complex with the mushrooming of national authorisation regimes across Europe and beyond.
If the transaction involves a target or a seller that is licensed or have subsidiaries licensed in Malta, it is likely that the transaction would need the Malta Gaming Authority’s (MGA) approval before it is completed. In fact, the law requires prior approval by the MGA for any sale of shares exceeding 5% equity in the licensed entity as well as for the sale of the licensed business and for every merger, reconstruction or similar transaction.
A merger or an acquisition may be quite a complex transaction, usually accomplished in a number of stages and which is finalised on a pre-agreed date of completion. Therefore, the necessary approvals of the MGA should be sought at an early stage of the process. That said, due to the delicate nature of such deals, the MGA allows the parties involved to sign the agreements, as long as a condition is placed that they are subject to the authority’s approval.
It is very important for the acquirer of a remote gaming operation to ensure that the remote gaming licence(s), which will be relied upon by the operational company following the transaction, cover the entire gaming operation. Furthermore, one must not solely rely on the licence document but it is fundamental to conduct a thorough regulatory due diligence and obtain a ‘certificate of good standing’ from the MGA to confirm that the remote gaming licence(s) are being operated in compliance with the regulations and that there are no pending fees and open complaints related thereto, before the deal is completed. One should also evaluate whether, depending on the entity and size of the transaction, whether to notify the relevant competition (anti-trust) authorities in terms of the applicable merger control regulations in the involved jurisdictions.