MERGERS AND ACQUISITIONS
s truck lucrative revenue share deals. driven by ongoing market regulation in the US and beyond. As tech businesses they benefit from similar positive characteristics to the wider technology, data and content worlds. They have developed new products tapping into the early promise of AI, and have managed to offset margin pressures from operator consolidation. That is unlikely to make them cheap but, for investors, they present attractive opportunities to ‘buy-and-build’. Add-on acquisitions enable a platform to broaden its product offering to clients and present partnership opportunities to cross-sell to the other’s customers. Legal and regulatory considerations Rising levels of M&A activity and interest in the gaming sector and related transactions should be good news from an advisory perspective. Membership of a network like the IMGL provides access to specialists in most if not all the jurisdictions where transactions are likely to be completed. Many investors have experience in multiple markets, but they will still need to consider the regulatory aspects of such transactions in each one. There are a number of regulatory considerations for M&A activity involving licensed gaming entities in the often heavily regulated gaming space. First, it is by no means safe to assume that the acquisition of a company and is assets means the operating license will simply transfer to the new owners. Many jurisdictions have strict legal or regulatory prohibitions against the sale or transfer of a gaming license. This, plus the consequent delay to launching operations, are the biggest reasons transactions involving the merger or acquisition of a licensed gaming entity are often structured in a way as to maintains the existence and status of the licensee. Prior to the awarding of a gaming license, regulators will often carry out extensive background investigations not only involving the applicant company but also its principals and the key executives involved in gaming operations. This will also often extend to individuals or entities with ownership stakes above a certain percentage or a beneficial interest in the applicant company. In general, a requirement to obtain regulatory approval is the norm where there is a change of ownership, in the financial
or equity interest, or in the persons with control or significant influence over the licensee. The precise legal or regulatory requirements will vary by jurisdiction and depending on the specific type of gaming license involved. There are also often differences in when such approvals should be sought. Some jurisdictions will ask simply that they are informed of the change on completion, whilst in others, a merger or acquisition could require pre-approval by the respective regulator and the licensing and investigation of any new owners or persons with control. These processes can be lengthy and onerous and it is important that entities contemplating such deals consider how long it may take to obtain any necessary approvals or authorizations prior to closure. Where an entity holds gaming licenses in multiple jurisdictions, this can have a multiplying effect with varying timeframes related to their approval/ licensing processes. Whilst we may still be some way off the emergence of a few players who dominate the global gambling market, that is not the case in gaming. In the UK, for example, the Competition and Markets Authority’s scrutiny of Microsoft’s acquisition of Activision added months to the approvals process. There will come a point when deals between gambling companies will attract the attention of the various competition authorities. There has been a great deal of talk in recent years about different approaches to data protection and privacy between Europe and the United States. Whilst this should not be news to any parties looking to do transatlantic deals, the consequences of due diligence failures in this area cannot be understated. The EU sets a maximum fine for infringement of the GDPR at €20 million or four percent of annual global turnover. There are also numerous examples of large fines being imposed for breaches which predate an acquisition or disposal. Entain’s deferred prosecution agreement for £615 million related to a former Turkish subsidiary. It was a first for the UK, but it may not be the last. Operational pitfalls Aside from regulatory considerations, there are considerations which fall into three broad areas: culture, technology and culture again. Internal company working practices and culture
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IMGL MAGAZINE | APRIL 2024
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