The wisdom of thinking small

We’ve become so inured to billion Euro deals in the egaming sector that two small acquisitions went relatively unnoticed in the past week. But in the context of the wider egaming picture, they are interesting to focus on.

Firstly Betsson made a £26.4m bid for UK casino operator NetPlay TV, then Mr Green acquired a small Danish casino operator for €9m. In pure revenue terms neither will move the needle a huge amount. For Mr Green the Danish brands it has acquired generated €3.9m in 2016, while NetPlay TV generated £14.7m in H1 2016.

Of the two, clearly NetPlay TV is the more significant. The UK-focused operator has a unique position where it drives sign-ups to its Jackpot247 brand through its late-night TV shows broadcast on terrestrial channel ITV, although in recent years it has struggled for growth in a hugely competitive market.

The potential for the Jackpot247 product, in addition to NetPlay’s Supercasino and Vernons brands, to move over to the in-house Techsson platform is an obvious opportunity to drive cost synergies and benefit from Betsson’s substantial in-house casino operating experience. But more importantly it bolsters Betsson’s position in the UK market.

Buying in growth

Betsson has struggled to gain market share in the UK, having to dial back its initial investment in the BetSafe brand after costs impacted group profits in H1 2016. It continues to invest in the world’s largest regulated egaming market, however, and has likely learned a lesson from the step-change impact its long-term rival Unibet had from its acquisition of UK-focused Stan James.

The addition of Betsson’s tech and marketing experience and scale to an established UK brand can be a real accelerant to growth in the UK. NetPlay TV also comes with a digital marketing firm, Otherside, acquired by NetPlay in 2015 to add additional local market expertise. And it is this type of offering that could lead to a number of similar small to mid-sized deals throughout 2017.

As George Fleet noted in his opinion piece on the current M&A market two weeks ago, the need for geographic expansion into locally regulated markets would be a continued driver of M&A activity. It’s not simply a question of gaining rapid scale in competitive established markets, it’s also benefitting from years of brand exposure work carried out by the acquired firm and the local market knowledge contained within those teams.

Mr Denmark

Rival Nordic operator Mr Green was another firm making a move with all these hallmarks this week. It agreed to pay just over €9m for a female-focused Danish operator with three brands in the regulated market. It intends to continue to operate them alongside the more male-friendly Mr Green brand as it looks to scale up in a country that at first glance should be an easy transition.

“Since we are focusing on expanding to locally regulated markets, an acquisition in Denmark has been high on our list,” Per Norman, CEO of Mr Green, said. Peter Eugen Clausen, CEO and co-founder of Dansk Underholdning, added: “The deal is a perfect match as it combines Mr Green’s competences and economies of scale with the Danish presence and local knowledge of Dansk Underholdning.”

Both statements are interesting in that they give some insight into where the market is currently headed. The fractured nature of the European regulated sector means operators can’t be expected to have local knowledge in every new regulated market and we’ve seen from Italy and Spain that a one-size-fits-all model is frequently destined to fail. The value even relatively small local firms can bring to a major organisation like Betsson is greater than just their existing revenue stream.

For the local operators the ability to tap into a technology platform that has had millions spent on it and the data-analysis and marketing expertise contained in a major operator is also a win if it retains an equity stake. In a high-tax environment, as European egaming increasingly is becoming, economies of scale can’t be ignored. And that drive for scale works both ways.

Solving the puzzle

The majority of the European casino sector remains a very fractured affair with a large number of operators holding small chunks of market share. Even in the UK, the likes of William Hill and Sky Betting & Gaming are no more than 10% of the total sector. There is still a lot to play for and there are still a lot of operators in play in the UK, and the same is true elsewhere not least as new markets open up in the Nordics and Eastern Europe.

It’s not true to say that the days of the mega-mergers are over, but alongside this it would be no surprise to see the number of smaller acquisitions really gain pace in 2017. While a patchwork quilt of brands and platform integrations is not hugely attractive, a more selective country-driven approach can bring real rewards to those willing to take on the short-term pain. And it appears the Nordic operators are willing to lead the way. What will be interesting is to see who follows…