While most of this year’s M&A action will happen in Europe, some of the largest acquisitions of 2019 are set to take place in the United States.
These will include several significant deals, though made for very different reasons than acquisitions on this side of the pond. Indeed, notwithstanding the latest opinion from the US Department of Justice on the Wire Act, some of these discussions are already underway.
Since the market opened late last summer, with the exception of one or two deals, most US-based acquisitions have been minor, some blatantly treading (legislative) water, others testing share price.
It is no secret that most asset-based acquisitions in recent months have mainly been made to safeguard share prices rather than as part of longer-term strategic views.
From an investor’s perspective, that is a sound rationale. The market is still nascent, the post-PASPA dust has yet to settle, and even the more established brands have experienced launch setbacks – particularly when using third parties.
The recent DoJ ruling has further solidified this rationale. A conservative view on US-based acquisition would thus appear to be the best approach.
However, the M&A landscape is set to change later this year. A significant increase in private investment is encouraging the middle-tier, privately held European entities to make bolder moves into the US.
This won’t necessarily be made via EU-facing brands, but rather via proxy assets, such as those based in Australasia and South America.
First off, it’s worth unpicking the underlying narrative from the DoJ opinion. While the immediate interpretation is that of extending the scope of law barring gambling across states, the reality is that the implications are still vague.
Legally speaking it will take a while for this opinion to inform new (or especially ongoing) dispute cases and, even then, it’s doubtful if anything at all will change.
What’s of immediate interest is how periphery verticals such as daily fantasy sports (DFS) sites will respond to this opinion, as they are likely to claim that the Wire Act was never intended to address such products.
The short-term casualties of these Wire Act uncertainties will be payment providers. With uncertainty over whether they will be liable for any upcoming infringements, expect to see significant retreat in inter- (and intra-) state fund-movement support, with newer players deferring their entry, possibly indefinitely, until clarity on the legalities and implications of this opinion are cemented.
There is a strong likelihood of a market exit for the more risk-averse contenders, or even an attempt to move offshore again. The implications being that the payment market will regress in the short term and, conversely, present a consolidation opportunity for the stronger, risk-hungry contenders.
Regardless, beyond this immediate roadblock, there lies a bigger US play on data, specifically the analytical behaviour of players across games, events and specific target-driven campaigns.
Data-driven companies in the US have always enjoyed strong rigour around acquisition, analysis and outcome-generation across numerous verticals.
Thus gaming (and gaming-based derivatives) have enjoyed the richness of data coming from such assets.
It is anticipated that several acquisitions this year will be data-centric assets, not least because they do not necessarily directly violate any interpretations of this extended DoJ opinion.
Further afield, there will be big plays for some of the active gaming and stateside DFS brands. It remains to be seen if these brands will be aligned with a more European base or (as is expected) left to disseminate in their own branding using the newly acquired parent mainly for strategic and marketing capital.
A significant portion of the deal-flow will still be ‘Old World’ based, for two key reasons. There are still too many players co-existing in a crowded EU space, and that creates a rich environment for acquisition.
Expect at least two significant brand mergers this year, and share prices will be expected to consolidate. Elsewhere, there will be acquisitions of small to medium brands in emerging markets, again by large operators in the European space.
Key to differentiation will be showing diversity in emerging markets, with spotlights on South America and Africa, and limited inroads into Asia (not least until the bigger brands figure out how to address China properly).
The latest DoJ opinion will do little more than add more noise in the short term.
In the meantime, expect to see those data-centric acquisitions in the US and a couple of attempts on key US-heavy brands.
Elsewhere, the spotlight will focus on key EU-based brand mergers, as well as leftfield acquisitions into emerging markets. This is shaping up to be a very interesting year, acquisitions-wise.
Julian Buhagiar of RB Capital is an investor, CEO & board director to multiple ventures in gaming, fintech & media markets. He has led investments, M&As and exits to date in excess of $370m.