Investment appetite returns to egaming
As the effect of two years of recession subside, the appetite for institutional investment in egaming is back according to a number of senior industry figures
Gala Coral, Sporting Index, Snai, Harrah’s and a number of other operators have all benefited from substantial private-equity deals in the past, but relatively little investment activity has been seen in the two or three years since.
However, Mark Blandford, founder and former chairman and chief executive of Sportingbet, now founder of Valhalla Investments, a venture capital fund focusing on the leisure and egaming sector, says that there is now “better value” for investors than there has been in the past. “At least two to three venture capitalists are looking to up their game and to get more exposure to the [online gaming] industry.”
Blandford, who with his business partner sits on 10 management boards, has a 40% stake in one-year-old online financial trading business Pan Index that is targeting more recreational players in emerging markets “ with average deposits of around £5,000 “ such as Asia and most recently Sweden.
Another of his investments is Envoy Services, in which he has an 11% stake. He says there are several start-up businesses in the gaming sector that are looking for further funding as they grow and enter new markets.”EU gearing has prevented many from investing in the past but I have been approached [in the last month] to use Valhalla as an investment vehicle to raise funds as a way round this.”
In the past, private-equity players have traditionally been reluctant to invest in egaming because of continued negative headlines surrounding the regulatory position of the industry in Europe and particularly in the US and the potential risks involved.
However, with the large majority of businesses having now settled with the US Department of Justice post-UIGEA, and the European Court of Justice successfully fighting monopoly-dominated states in recent cases in Germany and Austria, many believe the time is now right for institutional investment, private equity and venture capital to once again make a number of sizeable deals.
Online gaming also benefits from high growth and strong cash generation, so even in a low leverage environment, private-equity returns can appear interesting.
At the annual European iGaming Congress and Expo conference in Copenhagen in October Oliver Zugel, CEO and chairman of Spring City Finance and an expert in gaming investment, said there had been a “real pickup” in the interest in gaming companies from the investment community in the past 18 months. “There has been significant activity in institutional markets putting money into gaming. Banks are lending again and this is a fundamental driver in institutional investors investing again.”
Andrew Burnett, executive director at investment bank Panmure Gordon that was recently chosen to represent 888 Holdings, told an audience at EiG that large private-equity houses have “always been and always will be” open to investing in egaming. “Even since UIGEA there has been a lot of investment from PE and the public markets.”
He added that as long as the returns are clear, the investment community is willing to take a calculated risk.
Blandford said institutions were now willing to invest more money. “In Valhalla we have a total of 18 investments, eight or nine of which are in egaming. FSB Technology, for example, is a fantasy sports-betting portal and we’re there to leverage those products.
“We are more flexible and angle focused. The landscape is very interesting for investors and there is a strong pipeline of deals and original ideas but we will only invest if the people and product are right.”