Market Watch: Affiliates should expect out-of-industry competition for high value assets

Better Collective’s recent mega-brand acquisition of Vegas Insider and Scores and Odds has accentuated the increasing trend for acquiring strong US facing brands. The medium-term strategy here is clear; while sites such as this currently enjoy high user retention thanks to detailed and dedicated stats, news, tips and media, at some point they will hopefully be able to direct traffic to licensed US operators with a sustainable share of the proceeds. The aim for early movers is to get as much of a land grab and establish market leadership in time to take advantage of newly-licensed regulations.

Let’s be clear; this is not a quick win strategy. The landscape has been moving slowly for the last few years and will continue at the same pace until some form of homogeneity exists across states; witness what has happened with payment service providers. But a timely and well-placed acquisition will secure long-term returns in this region, and some of the bolder public companies are betting the (US) farm on such strategies.

Elsewhere, several new opportunities are starting to appear in well-regulated markets, but at the other end of the valuation spectrum. Smaller UK, German, Dutch and Nordic affiliate businesses have enjoyed modest but consistent growth, mainly through conservative SEO strategies and focused paid campaigns, recognising that the (valuation) time is right, there is an opportunity to sell reasonably low-priced assets with a view to joining them up to a bigger ecosystem when the regulatory waters become clearer.

As a result, one of the few remaining lucrative segments, accessible to gaming-centric affiliate businesses, contains strong emerging €500k to €5m EBITDA assets, whose valuation will be significantly augmented by being plugged into a larger ecosystem.

Note to larger affiliate networks: this buyer’s market will not go on for much longer. The mid-market segment (€2m to €10m EBITDA) is rapidly diminishing, with most of the assets in this range already snapped up largely by public companies looking to bolster their share price. The remaining segments are the higher-valuation assets (EBITDA in excess of €20m), the purchase of which will usually require strong refinancing options for most players in the gaming market, and are more likely to be (and have been) acquired by emerging private equity interests from outside these markets.

Additional demand for these high value assets is coming from outside VC firms looking to top-up their fintech and alternative market funds, as well as new emerging VCs looking to issue dedicated gaming funds.

Some interesting deals will shortly be announced on both these fronts. So far, 2019 has been a transformative year in terms of investment and acquisitions, and the second half of the year promises to be even more disruptive.

Julian Buhagiar is an investor, CEO and board director to multiple ventures in gaming, fintech and media markets. He has led investments, M&As and exits to date in excess of $370m.