M&A – The Very Next Step in Romania for Remote Businesses?
Published in “Casino Inside”, issue 71
From the seller’s perspective, irrespective of the industry, the main objective is to make
the company look attractive for potential buyers. Applying this principle to the online gaming businesses operated in regulated markets, the minimum required would be for the company to be regulatory compliant, have a sizeable players data base, offer decent enough content, be in good terms with the regulators and, of course be profitable or have the potential to become profitable.
Where the sale/merger might occur at the level of the mother company, implications on each and every territory should be looked at, as no one hat fits all solution can be found in this industry. Since, in general, online gaming licenses are issued conditional on the bonafide of the beneficial owners, any changes at that level may require pre or post approval or at least notification to the regulators from the jurisdictions where the company operates. In addition, one should not overlook the fact that, in most of the countries including Romania, licenses are nominal and thus cannot be transferred from one entity to another.
It can be noticed that M&A gaming transactions require the assessment of the target company on several layers. Therefore, a thorough due diligence investigation, tailored for this regulated industry, represents one of the core exercises for the success of the deal.
In our view, the due diligence process should have a granular approach, territory by territory whilst keeping a general oversight at group level. The seller due diligence would thus verify standard issues such as keeping the right licenses and approvals, checking that all renewal terms have not been missed, all taxes have been paid, advertising campaigns have been developed with care for both gambling legal provisions but also consumer, advertising and media laws etc.
Nevertheless, regulatory compliance of the target gambling operator is only one side of the coin and even if the due diligence does not highlight enough “red flags” to block the transaction, there are still more legal aspects to be assessed.
Thus, in many if not all European regulated jurisdictions, depending on the way it is structured, a change of ownership in an online gaming company will need to be at least notified to the relevant regulators, even when performed at group level, if not be subject to prior approval.
Depending on the size of the parties involved, the transaction should be looked at and potentially cleared from an anti-trust perspective. Other restrictions on timing, prior notification, public notice and even restrictions on trading are imposed on listed companies. Should there be any change of control clauses in the material contracts to the business, prior approval from the said business partners should be negotiated and obtained. Not to be overlooked is the impact on the players, from both an operational perspective but also from a privacy point of view, where, as a result of the transaction/merger, changes are envisaged on the gaming platform for example, or generally on the operating model.
We may thus observe that there is a quite complex algorithm to calculate the aggregated business impact of all the legal factors attached to a M&A gaming transaction. In addition, given that online gambling has an exponential development and new products are launched every day, there seems to be a trend expressed in many EU jurisdictions to over-regulate the industry. At a first glance, all these legal barriers may create reluctance among investors interested in gambling businesses. However, a steady business vision and a proper team of advisors will definitely lead to a successful transaction and the opportunity to profit from the new era of entertainment.