Nygaard-Andersen: Interest rates won’t stop Entain from acquiring

Nygaard-Andersen spoke on an earnings call after Entain published a third-quarter earnings update. Revenue was up 2% year-on-year for the group, thanks to both record customer numbers and a favourable impact from currency movements.

When asked whether the new macroeconomic environment and high interest rates would make acquisitions difficult due to the costs of borrowing money, Nygaard-Andersen said that this was not necessarily the case.

“We of course remain vigilant and very prudent,” she said. “But the health of the business remains good. We still have a strong pipeline on M&A and we have opportunities that we will continue to pursue.”

The results came after a busy period of acquiring for the business, with Nygaard-Anderson noting the business agreed nine acquisitions in the past 18 months, including those of Unikrn, BetCity and SuperSport.

Instead, she noted that the high interest rates might even push down competing bids from more levered companies, which might make deals even more attractive to Entain.

“While interest rates are high, in the current environment, it might even open up new doors for us – new opportunities where we can buy while others might want to pull back.”

Chief financial officer Rob Wood echoed this sentiment. He said that while high interest rates are never ideal for acquisitions, there are a number of possible opportunities that would be extremely advantageous even if the cost of borrowing is high.

“The returns that we generally get through M&A are extremely compelling because of synergies,” he said. “So while rising interest rates are unhelpful to the model, they just make a deal slightly less attractive than they would have already been.

“The other important part is that our balance sheet is healthy. We still are forecast to end the year at three times levered. So there is the capacity and the desire to continue on with M&A.”

Nygaard-Andersen added that listed companies might be particularly interesting targets as the share prices of most public businesses have declined of late.

“Prices are where they are,” she said. “Publicly traded companies have gone down a bit and that could open up opportunities. Private companies might still want a certain return, though. But it does open opportunities for us as other companies might be holding back.

“We’re looking at companies on their own merits, and it has to be the right company, the right price, the right terms.”

Wood, meanwhile, compared potential acquisitions with using cash for share buybacks instead. Citing Entain’s August acquisition of Croatian operator SuperSport, he said that acquisitions have been a prudent strategy from a purely economic perspective, without even looking at the strategic advantages.

“We asked, ‘Should we be looking at SuperSport or should we be exploring share buyback?’” he said. “And there’s two questions: what’s best for the business strategically and what’s best for the business economically? On the economic perspective, acquisition was better. And obviously strategically, it was better to make the deal and expand into Central and Eastern Europe.”

Gambling Act review impact

Elsewhere, Nygaard-Anderson and Wood discussed the business’ UK online performance, where revenue had declined 15% in H1 due to a combination of affordability measures and lower spending as customers were hit by inflation.

Revenue was down slightly year-on-year, though against a lower comparative as H1 of 2021 included high online revenue due to retail lockdowns.

“It was still flat, but only marginally so,” Wood said of the Q3 performance. “The difference, of course, is moving away from lapping lockdowns in the prior year.

“Really it’s two things. One is ongoing implementation of measures around affordability. And then there is some impact on the consumer from the macro environment.”

The business’ performance in the UK may be impacted further by the Gambling Act review. While the business has put in place a number of affordability measures in anticipation of the review, Nygaard-Andersen declined to say whether she believed the full impact of the review was already priced in.

“We will basically have to see what comes out,” she said. “But for the last – almost two years now – the Gambling Commission have become much more clearer on their guidance.

“They’ve put in place a number of changes on affordability through 2021 and 2022, but what happens in the white paper, we’ll have to see.”

However, she did note that since Liz Truss became prime minister last month, the new government’s statements about the gambling sector were largely positive.

“The new government’s comments have been very pro-industry,” she said. “Very much about having freedom of choice, not having nanny-state regulations in place. So that’s all been positive.”