It’s a safe wager that more betting-company takeovers are coming as a need for scale drives more businesses into each others’ arms, according to the head of Bwin.Party Digital Entertainment Plc suitor GVC Holdings Plc.
This week’s planned combination of Paddy Power Plc and Betfair Group Plc is likely to hasten consolidation in a market that’s set to be dominated by a few big operators, Kenny Alexander, chief executive officer of GVC, said Friday in a telephone interview.
“To compete at the highest level you will need to have scale and size, and therefore if there are people down there that are maybe subscale, I think they will be forced to do some M&A,” said Alexander, whose company is due to learn on Sept. 1 whether it has succeeded in a takeover contest for Bwin.party. “Consolidation is well and truly taking place.”
The merger of Paddy Power and Betfair comes on the heels of Ladbrokes Group Plc’s amalgamation with Coral Group as the betting industry’s largest companies seek to get bigger. Consolidation has been fueled by increased regulation and higher taxes following the rapid growth of the $40 billion online betting market. GVC has been embroiled in a contest to acquire Bwin.party since that company recommended an 898 million-pound ($1.4 billion) offer from 888 Holdings Plc.
GVC has indicated that it will increase a proposal worth 125.5 pence per Bwin.party share to persuade its target to drop its recommendation of a cash-and-share offer from 888 that’s currently worth 104 pence. Bwin.party has said it will provide an update on Sept. 1.
“I expect to bid significantly higher than 888 are, and as a result I expect to win,” Alexander said. “I’m very, very confident. I haven’t thought of failure.”
888 also said Friday that its bid can triumph. Executive Chairman Brian Mattingley said on a conference call he was “very confident” that his company’s bid is of “significant value to the Bwin shareholders.”
GVC, Bwin.party and 888 all reported first-half earnings on Friday, showing how growth in earnings was offset by increased taxes, including a U.K. consumption tax that prevents companies from escaping levies by locating themselves offshore.
At 888, adjusted earnings before interest, tax, depreciation and amortization fell 17 percent to $40.9 million. Its tax bill to June 30 increased $15 million on the same period last year.
GVC’s earnings by the same measure rose 14 percent to 25.5 million euros ($28.8 million). Pretax profit declined because of one-time charges, including advisory costs of 3.8 million euros incurred in the attempt to acquire Bwin.party.
Ebitda at Bwin.party rose 2 percent to 47.3 million euros, with growth constrained by increased levies in the U.K. and European Union.
Pressures from higher taxes, high marketing costs and the threat of regulatory clampdowns are pushing consolidation in the gambling industry, Sophie Blandford, an analyst at Daniel Stewart Securities, said earlier this month.
“The only way to survive with more tax coming is to get bigger,” Blandford said.