More Gaming Industry Deals on the Cards as GVC Eyes Takeovers

Industry:    2017-03-25

A wave of online gaming takeovers is set to continue this year as companies are driven to deals by increased regulation and taxation, according to the head of one of the industry’s leading consolidators.

“I wouldn’t rule out that we will participate in the next 12 months, and I certainly think there will be other deals by other people,” GVC Holdings Plc Chief Executive Officer Kenny Alexander said in an interview Thursday as he announced increased profits and dividends.

GVC has been at the forefront of industry consolidation, buying Sportingbet Ltd. in 2013 and Bwin.party Digital Entertainment Plc last year, deals that have transformed the company into a European market leader. The pace of mergers & acquisitions has been accelerating, with about $14 billion splurged on betting-company takeovers in 2016, according to data compiled by Bloomberg. That’s more than in the previous four years combined.

“We’re always looking at M&A opportunities, and if the right opportunity comes along, then we will do it,” Alexander said. “We’ve got plenty of firepower.”

The need for scale is being driven by increased regulation and taxation, the CEO said. The U.K. government will start levying a consumption tax on online gaming products later this year, while Britain’s competition authority is reviewing industry advertising.

Shares Gain

GVC shares rose as much as 2.8 percent in London after the company reported a stronger-than-expected increase in 2016 earnings and said it’s made a good start to 2017. It also announced a special dividend of 15.1 cents a share, taking the total for 2016 to 30 cents.

Earnings before interest, tax, depreciation and amortization rose 26 percent on a pro forma basis to 205.7 million euros ($222 million) as the company removed costs following the takeover of Bwin.party.

Alexander said GVC is on track to deliver 125 million euros of annual savings from the acquisition by the end of 2017 as it eliminates duplication in areas such as technology, customer service, and marketing. Bringing together the sports trading teams also led to lower costs as some people left the business, he said.

Pricing Errors

Both Bwin.party’s sports-betting business and its Party Poker unit have returned to growth after years of decline and the improvement is accelerating, the CEO said. Party Poker, where revenue declined about 60 percent in the five years through 2015, is now showing double-digit growth, he said.

On the sports side of the business — mainly soccer, tennis, and basketball — the company has improved the win margin by about 2 percentage points since the acquisition. That’s been done by restricting bettors who were winning too much, and by tweaking odds-setting algorithms.

“There were a lot of customers winning that shouldn’t have been winning,” he said. “Customers we consider to be sharp, who are doing it for a living and were winning off us, they are no longer allowed to bet with us, or not allowed the same sort of stakes.”

The improved performance was illustrated by results for the opening months of this year that showed a 15 percent increase in net gaming revenue. That was despite some big wins for customers on Champions League soccer games in late February and early March.

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