Why the Latest Mega-Merger May be Probed
Posted by Harry Kane on Thursday, November 26, 2020
In recent times, the global tech-market has been dominated by large-scale mergers and acquisitions, and the iGaming sector is absolutely no exception to this rule.
This was borne out recently, when live casino giants Evolution Gaming and NetEnt proposed a mega-merger that would alter the existing iGaming landscape and join together two of the biggest and most successful software providers within the industry.
However, this deal (which was first mentioned in June) is now being probed by the UK’s competition watchdog, who are concerned about its impact on the iGaming market. But could this put the merger at risk?
What Do We Know About the Deal so Far?
When the deal was first referenced in June, it was suggested that the award-winning Swedish brand Evolution Gaming had formally offered to purchased Net Entertainment AB for a staggering £2.12 billion in shareholdings.
This definitely caught the industry on its heels, not least because these are two of the biggest names in the gambling industry, while both have a deserved reputation for being the top two live casino developers in the marketplace.
Evolution Gaming is also one of the most decorated software houses in the global marketplace, having won various awards since its inception in 2008. Most recently, it earned the Innovation in Live Casino award at the fledgling Sports Betting Community (SBC) Awards, thanks to the unique Lightning Roulette game and its innovative use of RNG elements.
In the case of NetEnt, this company has been trading successfully for more than 20 years and remains one of the true trail-blazers in the iGaming marketplace. It certainly boasts some of the most iconic slots of all-time in its library, including Starburst, Dead or Alive and the superb Jack and the Beanstalk.
Still, NetEnt’s recent move into the live casino vertical (along with its fast-growing global presence) highlights just why the merger makes perfect strategic sense from the perspective of Evolution Gaming.
More specifically, it creates an opportunity for Evolution Gaming to boost its profile and accelerate towards becoming the world’ leading iGaming brand, with this the most likely outcome if the deal is ultimately concluded.
Why Is This Being Investigated by the UK Competition Watchdog?
While the billion-pound deal may have been leaked back in June, it remains very much in its initial stages.
The process will also have undoubtedly been complicated by the recent announcement of the UK Competition and Markets Authority (CMA), which has pledged to investigate the anticipated acquisition and merger at the earliest opportunity.
Of course, the CMA has played an increasingly prominent role in the iGaming sector in recent times, having waded into both the sector’s continued consolidation efforts and a number of high-profile mergers.
For example, March saw the group declare that “there was no reason to obstruct” Flutter Entertainment’s huge acquisition of the PokerStars parent company The Stars Group (TSG), while it was also relatively quick to approve TSG’s 2018 purchase of the UK brand Sky Betting & Gaming.
These were international deals, however, and the CMA has taken a slightly different approach when adjudicating on deals between firms active primarily in the UK market.
In fact, it only authorised the 2016 merger between Ladbrokes and the Gala Coral Group after all parties agreed to sell hundreds of their land-based betting shops. In doing so, the CMA agreed with Ladbrokes’ rivals William Hill, who claimed that the combined entities would hold an overly dominant position in the retail betting market following the merger.
Make no mistake; this is also a key concern with the current deal, and as a result of this, the CMA wants to determine whether the union “may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods and services”.
Both companies have now been informed officially about the upcoming probe, with the CMA having set a tentative deadline of October 5th for the interested parties to comment on the proposed transaction.
Beyond this, the watchdog intends to issue its so-called ‘phase 1 decision’ by November 16th, although there remains no guarantee that any decision will actually be announced on or before this date.
One saving grace for the deal is the sheer size and global nature of both businesses, which trade prolifically in European markets in addition to maintaining a solid UK base.
At the same time, brands have also been proactive in attempting to crack the burgeoning US market, which has been a key target for iGaming operators since the Supreme Court overturned the Professional and Amateur Sports Protection Act of 1992 in May 2018.
This law had historically prohibited sports betting at federal level (in all states apart from Nevada), but since the decision, we’ve seen a number of local authorities legalise this practice both on and offline.
With casino gambling also on the rise in the US and several states looking to join New Jersey, Delaware and Pennsylvania in legalising iGaming activity, both NetEnt and Evolution Gaming have been keen to claim an early share of a rapidly growing marketplace.
With Evolution Gaming and NetEnt having recently signed live casino deals with US facing operators BetMGM, PointsBet and Wind Creek respectively, they’re clearly huge global entities that have strategic interests across the globe.
This may influence the eventual decision of the CMA, particularly given the intense level of competition in the UK iGaming market and the presence of similarly dominant brands such as Microgaming and Play ‘n GO.
The Last Word
Ultimately, the CMA will make its attention based on various factors, but there’s no doubt that the scale of Evolution Gaming in the wake of the proposed merger would potentially pose a significant threat to the competitiveness and integrity of the UK market.
Also, the situation may be complicated if the deal encounters opposition from rival brands, particularly those that also have a keen interest in the live casino niche (including Playtech, Microgaming and Betgames).
Regardless, the market will be watching with interest as the CMA investigates the deal and arrives at a decision, as this will have a huge impact on the future landscape of the iGaming marketplace.