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Mergers and acquisitions advice for the e-Gaming sector

posted 7 Jan 2015, 02:21 by Stephen Hind   [ updated 25 Mar 2015, 08:11 by Stephen Hind ]

According to Digi Capital M&A in e-gaming hit a record $4b in 2012. Whilst this shows that M&A is heating up transactional volume actually dropped by 27%, in effect there were fewer but larger deals. Already in 2013 we have seen the Sportingbet deal, William Hill’s probable buyout of their JV partner and the question of who will Playtech buy next with that money. With the looming UK regulation and its potential impact on small and medium operators, not to mention regulated US Poker this indicates to me that 2013 could be the year when the industry finally starts to truly consolidate. 

But be warned it’s also too easy for the M&A to be done for the wrong reasons such as increasing the share price multiple or buying revenue rather than longer term sustainable strategic reasons such as obtaining economies of scale, increasing bottom line revenue, entering new markets or buying expertise. Too often I hear the question “Now we have bought the business what do we do with it, how do we operate and what should the integration plan be?” Operators spend months negotiating the finer legal points around an M&A yet spend very little time before the deal is done even contemplating an integration plan.

Having directed two large and complex integration projects I have devised five golden rules that need to be answered before any lawyer even starts to look at a prospective M&A deal. 

  1. Know what you are buying - sure you have seen the numbers, spread sheets and due diligence but what is the culture like, what brought the company its previous success and can that continue? What’s the history and reputation of the company? Is there more than a database on offer? If you can't answer don’t buy.

  2. How much is the target company really worth - Why do people still look at GGR as a metric? Never accept the answer “we spent a lot of money on branding 18 months ago, we now have a good loyal customers base with great retention so no need to spend at that level moving forwards”. It’s not true the cycle will turn and your metrics will all go the wrong way. In essence does the company’s valuation have any resemblance to future reality?

  3. What’s the M&A strategy? - Do you want to grow in a specific market, do you need a product you don’t have, do you need marketing expertise and what's your brand strategy going to be? More importantly can you cut costs and make the company more efficient and increase bottom line revenue if so how? Will buying a company fix your company’s problems or is it more of a quick band aid job?

  4. Can you integrate and if so how long will it take? - It all starts with technology, be realistic if, how & when you can merge the IT- then add another year. Staff and process integration is slightly easier but still fraught with problems and can only really start after the technology integration. You must pre plan a staff retention strategy for both sides, if not you lose the good ones first. 

  5. Don't try and integrate by yourself bring an expert in  - The COO, CTO, CEO or a project manager from the company are not best placed to manage integration, the core revenue will be impacted, they don't have the time, they don't have the expertise and they are bias to one side. Use the services of a Gaming Integration Director and team, they have done it before know the issues and are able to independently assess the structure, facilities, employees and brands of  the bought and buyer to recommend the best future structure and strategy, then oversee the actual integration. 

By following these five rules I believe that the longevity and profitability of our industry can be assured no matter what regulation and taxation is thrown at us. 

Peter Marcus was the former Chief Operations Officer for William Hill Online as well as UK Managing Director for Betfair. He now is the Associate Consultant for DrPete Technology Experts, a consulting company specialising in IT strategy, specialised project management and integration within the online gaming industry. 

By Associate Consultant Betting And Gaming
Peter Marcus
As published in E-gaming Review

Mergers and acquisitions advice for the e-Gaming sector

strategic IT consultancy
Stephen Hind,
7 Jan 2015, 02:21