Pulse

What the future holds – Paul Richardson, Managing Partner, Partis

Paul Richardson, Managing Partner at Partis, reflects on the future trends and challenges for financing mergers and acquisitions of public or private companies in the gaming industry ahead of his IAGA Summit panel in Washington DC, May 28-30.

What does the future hold on financing mergers or acquisitions of public or private companies when interest rates decrease? 

There are substantial funds in the private equity community waiting to deploy and gaming businesses with their strong cashflow potential are a favourite sector. However the availability and cost of leverage (debt) has dramatically limited this to date.  It seems that the market is turning though as the Silver Lake bid for Endeavour has clearly shown. Sometimes when the deal is just that good, the numbers can be made to work regardless. With valuations in the UK and Europe at a remarkable discount to those in the US (a function perhaps of the ESG requirements of investors as much as the ongoing cost of living and regulatory pressures), I fully expect to see dealmaking for EU/UK targets by both private equity and North American strategic buyers ramp up over the coming months. 

Why did SPACs fail so quickly? 

In a nutshell, quality and quantity. For every successful SPAC deal (like Draft Kings) there were too many poor quality SPACs transacting (or trying to) with lower quality assets. In a low cost of capital environment where SPAC investors had no real opportunity cost to the capital they committed to a SPAC, it was relatively simple for the early SPACs to close a deal.  As interest rates rose and the quality of the assets being brought forward to SPAC meant that it was in the interests of the investors to block a deal and withdraw their money they had committed to date (rather than following it into the deal with further funds).  Redemptions in SPACs (which had a finite lifetime to secure a deal and bring it to investors) snowballed and the market pretty much shut down within a few months.

What M&A activity might lie ahead in pre-regulated jurisdictions and those in the early stages of regulation?

Brazil is on the cusp of regulation for igaming and betting and is keeping all of the advisory community very busy as those international operators who are not already there on a (pale) gray basis are now frantically trying to find a local partner or acquistion to allow them to launch with the benefit of local knowledge, brand and a database. Expect to see a raft of deals as we move closer to a full launch towards the end of the year.  

We are starting to hear interest in India (where DFS and Rummy are significant and the off-shore betting on cricket may be the largest single-sports betting market globally) although there is so far nothing much coming from government.  Still further away is China although again, people are starting to think about what they may need in terms of product and operational expertise should that change.  At the heart of all of this is the key driver of gambling legislation, taxation. Brazil has set its online tax rate at a level which is going to encourage investment and drive a substantial return to the tax man. How long will it be before India, China etc decide that there is so much money going offshore via VPNs and Crypto that it is worth regulating and taxing it at home. There is precedent in Macau – but it needs a local to champion it…