When iGaming Business last wrote about the trend toward consolidation among affiliates in May, we said it showed no signs of abating and indeed so it has proved with some headline-grabbing deals having been completed in the intervening months.
Prominent among these are three more deals from Catena Media. In late May the Stockholm-listed firm announced a deal to buy Newcasinos for a total potential price of €11.9m. Following on from that — and after confirming it had raised a further €50m through a bond issue in June — it added the Delilah Holdings affiliate assets for a maximum of €6.45m and then most recently it snapped up the sports betting affiliate Bettingpro and related assets for £13.9m (€15.7m).
By our count this makes a total of 22 deals completed in less than three years, making Catena Media the most obvious centrifugal force within the sector (see table below). Notably, since it paid $6m for the Right Casino assets in November 2015, the price tags on the deals have been moving upwards. Of the five deals completed this year the average potential sum paid out has been €11.1m.
In the affiliate business, as much as in other areas of the online gambling sector, scale counts and Catena isn’t the only player in the market intent on growing bigger through acquisitions. Also recently making a splash is Better Collective, the Copenhagen-based affiliate business and the company behind the successful BettingExpert and SmartBets websites, which inked a deal at the start of June to buy the German-speaking affiliate SportFreunde for a sum believed to be more than €10m.
Jumping on the consolidation bandwagon
Jesper Søgaard, the founder and chief executive of Better Collective, tells iGaming Business that “this is the time to be joining” the rush towards M&A. “There is no doubt that there is an industry trend to begin consolidating, and we have been ready to join the fray for quite some time.”
He adds that he believes scale will only grow in importance as a factor in the affiliate arena. “The impression we are receiving from the operators is that they prefer to work with bigger partners, so from that perspective it is advantageous to consolidate,” he says.
Charles Gillespie, chief executive at Gambling.com Group (formerly KAX Media), which has also joined the M&A fray in recent months, is far less certain, however, that operators will be quite as welcoming of the trend towards enlargement among their affiliate client base.
“The smart operators are already concerned about this,” he said. “They see themselves ending up working with four or five very large affiliate organisations that have a substantial amount of power. They are already considering the strategic ramifications of this trend.”
One such net effect of the M&A is that the affiliate sector should become more efficient. Notably, in the case of many – but not all – of the Catena Media deals announced to date, up to a third of the potential total sale price consists of earnouts.
That fact holds a clue as to what Catena Media hopes it will achieve via leveraging these assets by plugging them into its own patented content management system, by which it believes it can enhance revenues across the group.
With the Bettingpro deal – which didn’t contain an earnout – Catena Media has added a substantial content production unit of up to 30 journalists to its business. Yet of equal importance is that the existing casino side of the business currently contributes circa 10% of total revenues. The new owners will doubtless feel confident they can improve revenues here.
Søgaard says Better Collective similarly hopes to identify “mutually beneficial acquisitions”. “The companies we consider acquiring have caught our eyes because they are doing something right — it makes no sense to just take over and close down existing protocols to implement our own,” he says. “What we look for are ways that our companies can learn and benefit from each other, and help increase the value for all stakeholders.”
Looking at the value chain
A handful of operators are taking a different route and buying their own way into the traffic business, including Cherry Gaming and Gaming Innovation Group (GIG), and there are indications that others might also take the direct route.
Stockholm-listed operator Mr Green announced in June it had raised SEK195m (€20m) to fund potential acquisitions and a spokesperson for the company confirms it its seeking deals in “all parts of the value chain” including potentially affiliates.
Gillespie believes the “logic” of operators buying up affiliate assets is clear. Referring to GIG’s deals – which include two deals earlier this year for a German-language site and UK-facing Casinotopsonline – he says that GIG can monetise traffic twice by sending players to brands on the GIG-owned iGaming Cloud platform. “This means they could potentially spend more on traffic as they are getting a higher player value,” he says.
The price of entry into the affiliate M&A arena is also, as suggested from our Catena Media analysis, on the rise. “There is no doubt that prices will be affected with the introduction of more buyers,” says Søgaard.
Gillespie agrees that pricing expectations have “soared” but he suggests that is yet to translate into deals closing at higher multiples. “There are still affiliates out there willing to be bought for reasonable multiples,” he adds. “Until that supply is completely exhausted, then there will be no need to close deals at higher multiples.”
As for further M&A deals, these would certainly seem to be highly likely from all the indications of market participants. Søgaard says Better Collective is in discussions with affiliates working in both the sports and casino verticals; meanwhile the new chairman of Raketech (which has completed three deals in as many months for undisclosed sums) Christian Lundberg said when he joined in June that his company will “continue to pursue our acquisitive agenda”.
Lastly, there are almost certainly going to be more deals in the offing from Catena Media given it is yet to exhaust its funding. As Gillespie says: “The operational, financial and strategic rationale for affiliate M&A all check out. There is no end in sight.”
Related articles: RakeTech, Catena finalise affiliate acquisitions
Catena acquires Delilah Holdings’ affiliate assets
Affiliate M&A keeps up the momentum (paywall)
Catena Media to acquire Bettingpro.com
Better Collective acquires Hebiva Beteiligungen
RakeTech names Lundberg as new chairman
M&A activity in affiliate sector likely to keep on rising (paywall)