Big Mergers and Acquisitions on the Horizon for Online Gambling Industry
Internet gambling companies face a wave of consolidation in the wake of the US clampdown on online gaming, which could see American casinos and gambling businesses swooping for bargains in the sector, the heads of two of the biggest online gambling sites said on Monday.
Mitch Garber, chief executive of PartyGaming, and Gigi Levy, who takes over as chief of 888 Holdings this year, made their predictions as the sector felt the impact of the bill passed in the Senate on Friday making it illegal for banks and credit card companies to process online gaming payments from the US.
Investors wiped $7bn (£3.7bn) off the market value of what at the start of trading was an industry worth $12bn, as heavyweight internet gambling companies said they would suspend indefinitely their US operations.
PartyGaming, the biggest company in the sector, lost 57.94% after announcing it would suspend all money gaming business with the US indefinitely when President Bush signs the bill into law.
Across the sector, internet gambling stocks went into freefall. Sportingbet lost 64% of its value, falling to 66p. 888 Holdings, which has also indefinitely suspended US operations and expects to take a charge, dropped 26%.
Mr Garber told the Financial Times that he expected the pace of consolidation to quicken, with MGM and Harrah’s, which built their gaming empires around the fully regulated Las Vegas casino industry, likely to step in. However, Harrah’s had other matters on its mind yesterday with news that it had received a $15bn takeover offer from private equity companies Apollo Management and Texas Pacific.
Now that listed internet gambling companies are expected to abandon the US en masse, the remains of their businesses will be free from the question of illegality that might have put off investors and prospective buyers in the past.
Mr Garber said: ‘I wouldn’t be surprised if they [MGM and Harrah's] didn’t have an interest in winning non US-facing companies as a means of tipping their toes in the internet world.’
Mr Garber said he expected PartyGaming to be involved in buying up companies likely to suffer heavily from the impact of the new US legislation. ‘We are very focused on mergers and acquisitions. I see our liquidity as being very attractive to smaller players who may not be able to survive on their own.’
A banking adviser in the sector said: ‘This is going to create a round of consolidation but what format and nature and how broad is a different matter.’
Mr Levy said consolidation would happen first between online operators in order to restore the high margins lost by the US debacle followed by takeovers by big onshore operators coming from both the US and the UK.
