Why mergers and acquisitions are becoming more popular in the gambling industry

DraftKings’ proposed acquisition of Entain continues a trend we have seen in the gambling industry over the past couple of years. Since DraftKings entered into an agreement to purchase sports betting supplier SBTech through a special purpose acquisition company (SPAC) to go public in December 2019, there has been a spate of mergers and acquisitions in the industry, particularly in Europe and the US.

Last summer during the height of the pandemic saw several online gaming companies go public. Golden Nugget Online Gaming (GNOG) became the second online casino operator in the US to go public after Landcadia II purchased it in a deal worth $745m in June 2020. The next month, Rush Street Interactive became publicly listed following a definitive agreement to combine with SPAC dMY Technology Group.

A reason for the influx of SPAC deals could be because it is faster to go public through a SPAC than a traditional IPO process and allows the company who are planning to go public give business projections which again, speedsup the process. The need to go public to float shares on the stock exchange was accelerated during the pandemic as an important way for the big players to recoup some of the millions of dollars, pounds or euros lost as a result of the land-based industry closing for several months, and live sport being suspended.

While so far this year has seen some major acquisitions and combinations taking place. Caesars Entertainment acquired William Hill for £2.9bn ($3.96) in April, to close out one of the largest mergers in modern gaming history. Growing the company’s US sports betting footprint was the biggest reason for the merger, as Caesars put William Hill’s international assets up for sale. Those were purchased by 888 Holdings in September for £2.2bn, to create a powerhouse sports betting bookmaker and operator in the UK and Europe.

DraftKings further flexed its muscles before the Entain proposal became common knowledge. The sports betting and fantasy sports operator acquired GNOG in an all-stock transaction worth approximately $1.56bn in August. This deal will see the operator use the Golden Nugget brand, online product experience and a database of more than five million users. The Entain proposals, which was initially rejected, values it at $22bn and would see DraftKings become a global leader in the sports betting and gaming sphere.

Again, the pandemic must be considered as being a major reason for the high number of acquisitions in the past 18 months or so. The major trend of the pandemic, which caused worldwide lockdowns since last March, has been the acceleration and transition to online gaming. Research too supports this claim. Statistics fromResearchAndMarketsstated itexpected the global online gaming market to grow from $64bn in 2020 to $72bnin 2021, which represents a compound annual growth rate (CAGR)–the mean annual growth rate over a period longer than a year – of 12%. The report also mentioned that the growth is in part down to the pandemic, and a faster acceleration in the US, with the country’s online market expected to reach $112bn in 2025, also at a CAGR of 12%.

As a result, companies are looking to collaborate and work together to best fight for market share, predominantly in Europe and the US. When you consider that the proposed Entain and DraftKings merger would bring in an estimated annual revenue of more than $6bn, you can see why such acquisitions are becoming more popular.

Another reason is to capitalise on the boom in the US. Casino gaming is now legal in 44 states in the country while sports betting is legal in 32 and the District of Columbia, and six states offer legal online gaming. Additionally, American Gaming Association (AGA) statistics show that US commercial gross gaming revenue (GGR) reached an industry record of $13.6bn for Q2 2021.

The US online market is now the place to be and operators such as CaesarsEntertainment, who specialises in the land-based sector, know that they need to use online leaders, such as William Hill, to capitalise. The fact Caesars sold William Hill’s international assets demonstrates how important it is to capture the US market and how operator’s value the country. And for that reason, we can expect many more deals and rumours of further major mergers and acquisitions in the coming months.

Image source: Pixabay.com