The American dream and regulatory compliance

The past couple of years saw an exponential increase in M&A, with online gaming companies being a prime target for investment and/or cross-border regulatory requirements. The incremental opening of US states to online gambling was without a doubt a prime mover for increased M&A activity, motivated by the following reasons: • Financial: For US gambling outfits to immediately record high turnover levels from a group consolidated accounting point of view. • Regulatory: To demonstrate possession of approved gambling platforms. • Technology: To piggyback on the tried-and-tested platforms and games to hit the road running. • Commercial: For the US brick-and-mortar operator to acquire ‘online’ expertise and experience of the European-targeted company. The interest by US firms in EU outfits, with the former traditionally operating in the land-based space, also had a ripple effect on other M&A, particularly seeing EU firms merging. M&A activity kept the main EU regulators with the most targeted licensed companies, such as the Malta Gaming Authority (MGA), the UK Gambling Commission (UKGC) and the Swedish Gambling Authority quite busy in screening M&A which directly or indirectly involved their licensees.

Pre- and post-transaction approvals

The key regulators adopt an ex-post ‘approval’ approach, meaning an M&A transaction is allowed to happen under certain conditions, with regulatory screening on fitness and properness carried out by the regulator once the notification of such a transaction happens. Caution needs to be applied on the procedure to follow, as each jurisdiction imposes its own conditions on how and whether the ex-post applies. In the case of a UK licensee, if the transaction sees a single ultimate beneficial owner acquire over 10% of the shares, a change in control requirement is triggered, thus, the ex-post possibility would not apply, with pre-transaction approval required. In Malta’s case, the ex-post approach applies irrespective of the shareholding acquired, with the advantage that such transactions can happen swiftly. However, the operators involved in such deals need to be very careful not to compromise their licence, as the responsibility (and risk) that the deal is communicated in time, appropriately and that the new qualifying shareholder passes through the MGA’s fit and proper/source of funds clearance, is solely borne by the licensee. Should clearance not be granted, the worst enforcement action that can be imposed after the cancellation of the licence is that the MGA may direct for a reversal of the transaction. Other regulatory bodies have their own procedures too, some of which may only have an ex-ante approach. Once a targeted company is licensed in numerous jurisdictions, the regulatory compliance element of the transaction may turn out to be complex. A two-phased approach would then need to be taken: obtaining the pre-transaction approvals first, and then notifying those other jurisdictions having an ex-post approach as soon as the transaction is concluded. A targeted multi-jurisdictional licensed company should: 1. Plan the transaction from a gaming regulatory point of view 2. Pre-screen the buyers and their source of funds 3. Ensure regulatory notification and submission milestones are adhered to 4. Ensure the purchase agreements include the necessary safeguards to address the regulatory risks. Reuben Portanier is a partner at the regulatory and gaming advisory firm Afilexion Alliance, which forms part of the GTG Advocates group. He is an IMGL member, ex-CEO of the Malta Gaming Authority and former board trustee on the International Association of Gaming Regulators.