IMGL Magazine July 2022

Maltese gaming M&A

and the effort required for the collation of a comprehensive submission package should not be underestimated. What is clear from our experience is that the quality of the submission package will have a direct bearing on the efficiency of the approval process from the MGA’s perspective, making it easier for the Authority to process the request based on a complete submission of technical and legal information. It is also relevant to note that the approval must be accompanied by a notification fee of €1,500 payable to the Malta Gaming Authority for each approval request. In the event of a late notification, the MGA may, at its discretion, impose an administrative penalty on the relevant licensed entity of up to €25,000 and/or an administrative penalty of up to €500 per day for as long as the breach persists. It is important to emphasise that although Maltese regulations lay down an ex-post notification obligation (i.e. notification after the transaction is completed), the Authority has the power to reject the transaction if it concludes that the fitness and propriety of the licensee may be adversely impacted as a result of the transaction. In such circumstances, the MGA could effectively order the licensee to unravel the legal effect of the transaction, reverting to the status quo ante within a specific timeframe. To manage this legal risk, the preferred approach to transaction structuring in Malta is to make the share purchase agreement conditional upon the MGA’s approval of the proposed transaction, thereby suspending the completion of the deal and ensuring that the transfer of title in the target only gains legal effect once the MGA approves the fitness and propriety of the prospective purchaser. The MGA’s approval process may vary, depending principally on the complexity of the ownership structure of the prospective purchaser, since it involves a detailed due diligence approval process, focusing on the purchasing entity up to the level of the UBOs. By way of general guidance, a relatively simple structure should be approved within eight to 12 weeks from submission of the relevant request. Insofar as asset purchase deals are concerned, there may be significantly more complexity involved, depending on the nature of the assets forming the object of the acquisition, and how those assets will impact the continued operation of the licensed entity. Regardless of which assets are to be sold by the licensee, it is safe to assume that MGA notification and/ or approval would be required in such circumstances. Caveat Emptor! Here are some key considerations for buyers of a Malta- regulated iGaming Operator to look out for when

considering a target, with particular focus on Business-to- Consumer (B2C) operations. 1. Be clear about how the target or the strategic assets identified for acquisition will fit into, complement and possibly accelerate your current business strategy. As basic as this may seem, it is critical that the acquisition team handling the negotiation of the deal is clear about the specific benefits of acquiring the target or specific assets, the true value of the target or its assets, and how these will be managed post-acquisition to complement the buyer’s business strategy objectives. The temptation to buy a licensed gaming company with the sole objective of “acquiring the licence” makes little economic sense in circumstances where the buyer will need to overhaul the target’s entire business strategy to bring it in line with the purchaser’s strategy. Experience has demonstrated repeatedly that if obtaining a Maltese remote gaming licence is the sole or principal objective driving the acquisition, it is likely to be more cost-effective and quicker to set up a Malta-licensed operation from scratch. This brings the added benefit that the purchaser would also avoid any historical “skeletons” in the form of claims or liabilities that may affect the target or its assets. 2. Be clear about the real value of the Intellectual Property Assets forming part of the deal Besides the entrepreneurship and human capital components which are so vital to any operation, a significant component of the commercial value of a successful online gaming operator lies in the intellectual property (IP) assets. These IP assets would, to a greater or lesser extent, typically consist of a combination of intangible assets, including the brand, software, customer database, gaming content, regulatory and compliance know-how, IT infrastructure, and the integration of payment methods. As part of the deal-structuring it is important to assess the true value of each of these assets, identifying whether they are proprietary (belong directly to the target or another entity forming part of the acquisition) or, alternatively, subject to licensing or similar arrangements by a third party. Thus, for instance, the game content is most likely to be provided by one of the large B2B gaming operators that dominate the industry. When considering any such outsourced arrangements that depend on third-party service providers, it is imperative that the quality and reliability of that third party service provider, and its prospects for future development, are carefully assessed in the context of the proposed acquisition. A review of the player database to assess player conversion, player retention and player revenue statistics is essential,

12 • IMGL Magazine • July 2022

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