The impact of affiliate M&A

As a wave of consolidation continues for operators and suppliers alike, acquisitions in the affiliate market have also gathered pace. Melanie Dayasena-Lowe finds out how the affiliate landscape is changing

Over the last few years there’s been a sudden surge in consolidation among affiliates, most recently Catena Media’s acquisition of AskGamblers for €15m. What seems to be driving this consolidation is clearly down to the individual needs of the entities involved which are looking to add either knowledge, tech or extra talent to boost their current offerings.

Aſter being on the firm’s radar for about a year, Catena Media first contacted AskGamblers CEO Igor Salindrija a few months back to see if there was an interest to sell. “It turned out that both the buyer and the price were right,” explains Erik Bergman, chief strategy officer and co-founder at Catena Media. “It was very important to Igor that the buyer really cared about the product and the team behind it, and didn’t look just for revenue. We felt the same way. We knew the product was amazing and when the team turned out to be great as well, it was a no brainer for us to make this deal.”

Prior to the AskGamblers deal, Catena Media had been actively pursuing other acquisitions with the firm snapping up Wonko Media of Sweden and an affiliate network with a presence in Italy and Belgium. Both deals were signed with the aim to develop and grow further in existing and new markets.

“With regards to the recent Italian and Belgium websites, this ties well into our plans to take a stronger position in already reregulated countries. We see great results in the UK and we would like an even bigger part of our revenue
to come from similar markets,” says Bergman.

Catena Media’s Erik Bergman

A buying frenzy
But why the flurry of three deals in quick succession? “We had a very fast pace in regards of our acquisitions last year and we had to hold back a bit when it got too close to our IPO,” explains Bergman. “It hadn’t been possible to make any deals for a couple of months since it would have made too big of an impact on all numbers. We were, however, in dialogues with potential targets all along, and once the IPO was final we had some very interesting options already lined up.”

Ory Weihs, CEO of XLMedia, says the fragmented nature of the sector means consolidation was inevitable as it gradually matured. His firm was the first to push forward to become publicly-listed and the company approach has always been one of multi-product and multi-vertical both within and outside of gambling.

“Given there’s only a handful of companies that have taken this approach and there’s a lot that have stayed behind and refused to leave their comfort zone, you’re going to see more consolidation. These are usually going to be bolt-on acquisitions and in the long run it’s going to be very hard to maintain small, resource thin operations with limited tech capability and scalability,” he points out.

In the last two years, XLMedia snapped up social and mobile gaming marketing firm ExciteAd Digital Marketing for US$19m and took a majority stake of 54% in performance media company Marmar Media. Weihs says that the deals formed part of the firm’s plans to build on its existing technological infrastructure. “These were effectively bolt-ons,” he explains. “These are things we could have done organically, it just would have taken us longer.

“Now everyone is in the same office, using the same tech and platforms so there’s both revenue and cost synergies. There’s always need for vertical-specific knowhow and each company brought that in their respective sector.”

Weihs says that the firm is always looking for more acquisitions but he was quick to add a disclaimer. “We are not an acquisition story. We’re not a roll-up company. We grow organically and we’ve always grown organically. We’ve shown a very high level of organic growth over the last five to six years. We don’t need acquisitions to keep growing and hit our numbers, but we will make them because we can. It speeds up time to market, adds valuable assets but it’s not a must.”

XLMedia CEO Ory Weihs

Those within the affiliate market don’t foresee any ramifications from increased consolidation with most viewing it as a natural progression for the sector. “It is the natural way in every industry and it is happening all around us all the time. For operators, the consolidation will make it easier and more professional to deal with affiliates, more negotiations will be dealt with in offices and less in bars and restaurants as in the old days,” says Bergman.

Today’s deals mainly involve the larger organisations and being part of a larger corporation comes with its benefits, notes Luke Cotton, head of affiliates at Digital Fuel Marketing. “Operators generally value affiliates based on the volume and value of new customers that they can generate for them,” he says. “So if you have the power of a large network of affiliate sites under one umbrella, you are improving your standing in the market, thus having a lot more power in the affiliate-operator relationship and can justify improved commercial terms from the operators you work with.”

Building scale
The affiliate market has undergone dramatic change over the last 10 years, moving away from one-man band affiliates working from their bedroom to large, even publicly traded companies. “The business was much more about relationships and partying before. Now, it’s more about professionalism and scale,” remarks Bergman.

“I think it is a whole lot more honest today and transparent than before. The prices are a bit more standardised which might make it less likely for a casino to make a great deal but on the other hand it also makes it less likely to get screwed over,” he adds.

In turn, the shift in the affiliate space has meant the sector has become more mature and is taken more seriously, a sentiment Bergman agrees with but only to a certain extent.

“It’s still a fairly immature market, but so are most markets online,” he says. “There are still a lot of small affiliates out there and there are still many that operate their business with a Skrill account as their only bank account. We don’t believe that that will exist in a couple of years.”

Weihs also notes that consolidation in the affiliate sector goes hand in hand with the maturity of operators. “We’re seeing a lot of consolidation that side of the trench as well. In part that’s because scale is important, tech resources are important, users are becoming savvier and demanding better products.”

Looking ahead, the affiliate market is expected to continue to mature and become more transparent with further consolidations to come. “This will also lead to both casinos and affiliates expanding their knowledge of what works and what doesn’t, which will benefit all of us,” says Bergman.

Despite the prediction that consolidation will continue, Cotton argues that this is not a necessity for everyone. “Scaling an affiliate business through M&A can justify investing further in tech capabilities and staff. This should lead to improved performance and put pressure on their competitors, as the larger conglomerates have an advantage in that regard. I don’t think everyone has to sell by any means. There are businesses of all sizes that can easily stand alone and continue to succeed.”

Weihs predicts that there will be more corporate relationships, which for a listed company like XLMedia is nothing new. “For the smaller ones it’s going to have to change,” he says. “The industry is becoming more regulated. Operators can’t just work with anyone or any model with no guarantees or security. We’re going to see this becoming a much more corporate style of relationship. For us it’s fine as we’ve had these processes in place for many years. But for the ones that do everything on their own and don’t really care about these things it will be an added cost that they will have deal with.”

The recent spate of consolidation in the industry hasn’t caused much stir among affiliates with no real implications predicted by those within the sector. It’s all part and parcel of the affiliate sector growing in maturity, being taken more seriously and becoming less fragmented. And with more consolidation expected to come, affiliates are sure to become more powerful in the future as they unite to strengthen their expertise and technical knowledge.