Good morning and welcome to the latest edition of Deal Talk.

This month we look into the potential for more M&A to occur within the gambling regtech space. Following the news that GeoComply has acquired OneComply, the potential for a regtech roll-up was discussed from the stage at a recent industry conference.

• E+M spoke to the man behind the comment, Quinton Singleton, and other sector watchers to see what they think might be happening in an area where the trend line is only heading in one direction.

• Plus, the usual roundup of recent M&A activity and chatter from the past month, including headline deals from Aristocrat and Fanatics.

There’s a fire starting in my heart.

Regtech roll-up

The potential for merger activity in the gambling regtech sector has been given a distinct shove.

All the complys: The news at the start of May that GeoComply has snapped up fellow Vancouver-based compliance firm OneComply was significant not just because it was the company’s debut acquisition.

• As was discussed by founder Cameron Conn in last week’s E+M Startup Month, the deal was a “once-in-a-lifetime” opportunity to be a part of a larger entity.

• Conn said the gambling regtech space is “so new” because before the fall of PASPA there was no reason to invest in the type of companies that have since emerged.

• “If there was investment, it was going on things that generated revenue, not on [services that were] protecting revenue.”

• “The whole compliance space is in its infancy,” he added, with pioneering companies such as GeoComply that cemented the idea that gambling regtech was not only a ‘thing’, but increasingly an ‘investable thing’.

Get those doggies rolling: Talking in reference to the GeoComply/OneComply deal from the stage at SBC in New Jersey, Quinton Singleton, previously the founder of bet.works, principal at his own investment advisory firm and a director at FansUnite, predicted that a gambling regtech roll-up was one strategy to look out for in the coming years.

• Speaking subsequently to E+M, Singleton said that looking through the lens of venture investing, the potential for the gambling regtech space was clearly evident.

• The idea of a roll-up across the spectrum of companies that have grown up around the betting and gaming sector is “one of those conversations which is ongoing”, he added.

Runners and riders: Aside from GeoComply and OneComply, a non-exhaustive list of companies within the gambling regtech space includes: 

• AML firm Kinectify

• Licensing solution provider Compliable (see below)

• Data verification supplier W2 Global

• Open-banking affordability solution provider Department of Trust

• Identity verification provider AgeChecked

• Automated identity verification firm Veriff

• Geolocation provider XPoint

• Regulatory support firm Crucial Compliance

• Compliance processes provider Odds On Compliance

• Identity verification services provider IDnow

• Affiliate compliance provider Rightlander

• Geolocation provider GeoLocs (part of mkodo)

• Affordability solution provider ClearStake

• Digital identity solutions provider Prove

• AI-assisted responsible gambling provider Mindway AI (part of Better Collective)

• Automated data aggregation firm Synalogik

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Let’s get digital

Evolutionary leap: The ecosystem that has grown up since PASPA has occurred organically, suggested Singleton, but its foundations lay in the processes and people in the regulatory and compliance side of the land-based sector.

• When online first started, the companies soon found themselves overwhelmed by processes that were put in place long before a single regulated online bet took place.

• If there’s one phrase that describes the experience of people that have gone through the regulatory procedures for each and every state that has opened up in recent years to OSB and iCasino, it is ‘time-consuming’.

• But as Singleton pointed out, the potential for being able to automate processes – such as online sign-ups – may have wider use cases beyond just OSB and iCasino.

• “If you sign up for DraftKings it is largely the same process as for Binance or Robinhood; the tech use case has wider applications.”

Own it: Chris Oltyan, CEO at Compliable, agreed that investors are looking at how to exploit potential synergies across compliance solutions providers. “There is a belief that someone can own the space,” he suggested of a lot of conversations to be had with private equity and venture capital investors.

• “When you look at the history of roll-ups, there is a pattern,” he added. “People spot a compliance solution and then everything else lines up behind it.”

• But the problem with gambling is the still nascent nature of the space.

• “One of the complicated things about the gambling industry is that compliance generally is still being figured out,” he added. 

• “It is still changing, by the regulators and by legislators.”

• Chris Grove, principal at Acies Investments agreed. “Anyone who is seriously mulling that opportunity knows that gambling regulation isn’t a terrain you just barge into, navigate blindly and hope for the best,” he said.

• “Whenever I hear the topic discussed, it’s always within the context of leveraging companies and individuals who have deep and long-standing experience with US gambling regulation.”

Waiting room

Box fresh: Singleton agreed that the OSB and iCasino space is so new in the US – and the attendant compliance and regulatory providers are necessarily nascent – that any potential roll-up strategy might find itself too early to market right now.

• “It’s a brand new market that exists within another brand new market,” he pointed out.

• “There are a lot of nuances; the complexities of identifying which companies [can succeed], how they might work together.”

• “Any potential roll-up might simply have to wait awhile,” suggested Oltyan. “California could change things hugely, Texas could alter the landscape, and in Florida, who knows? What those states decide to do will impact how compliance is handled.”

• He pointed to the situation in the UK. “Things are always shifting, so you could be holding your breath for a long time.”

Soon come: Yet, it is likelier than not that more M&A among gambling regtech providers will be seen in the years to come. Grove suggested that any putative roll-up strategy is “not contingent” on additional US online expansion.

• “It's obviously better if there's a larger market to address, but the US online betting market is already quite large,” he argued.

• “And regulatory technology isn't limited to the online vertical – it has plenty of parallel applications in the retail betting environment.”

Keep the pressure up: Moreover, as Grove noted, pressure on the compliance sphere from outside forces – notably regulators, lawmakers, the media and to an extent consumers – means there is a desire for greater oversight, transparency and flexibility, all of which require innovation, expansion and ultimately investment.

• “Regtech providers consolidating into larger companies with more robust resources is certainly one way to close the gap between the world we live in and the world we're hoping to achieve,” he said.

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The month in transactions

The biggest deals in the sector each occurred on the same day last month.

A day in May: A coincidence of timing, perhaps, but the deals between Fanatic/PointsBet US and Aristocrat/NeoGames encouraged the notion that the M&A sluice gates might be opened once more.

• Fanatics decision to buy its way to a greater footprint in the US had been somewhat prefigured after the company was linked in January with a $100m-$150m acquisition of BetPARX.

• It was also no surprise that PointsBet was willing to sell a business, which as our last issue of Due Diligence suggested, was effectively a fire sale.

• PointsBet said itself that to continue with its loss-making US business would have entailed another cash raise.

New money: The team at Citizens noted that after a period of trying various approaches – including a failed attempt at gaining control of Playtech – the Australian-listed gaming supplier had finally landed a catch.

• The $1.2bn bid for the iCasino, OSB and iLottery provider NeoGames meant Aristocrat was “finally set to compete” in online gaming.

• One dealmaker pointed out that there appears to be a degree of FOMO entering the space once again.

• “There appears to be more intent on the part of buyers and sellers to do more,” the source added. “It might not be 2021 levels of activity. But it’s not the low levels of activity that we saw three or four months ago.”

The rest

888 sold its Latvian business to Paf for €28m in a cash-free, debt-free transaction. 888 operates under the William Hill and Mr Green brands in the country and it will provide brand licensing for a period following the transaction.

• The Latvian sale was overshadowed by the news within the last week that FS Gaming Investments, an investor group led by Lee Feldman, Kenny Alexander and Stephen Morana is looking to install Alexander to the currently vacant post of CEO.

Rumor mill

The likelihood of more deals in the pipeline has increased with the news of strategic reviews at Kindred and IGT.

Norwegian would: The biggest question surrounding the potential sale of Kindred – apart from who exactly is running the company after a slew of C-suite departures, including CEO Henrik Tjärnström, is what any potential buyer does with the company’s positioning in Norway.

• The loss of an appeal court hearing last week highlighted that a deal to buy the company doesn’t come without its regulatory risks.

You are awful, but I like you: Despite these “regulatory headwinds”, analysts at Jefferies suggested this week any potential buyers – a list that includes MGM Resorts/LeoVegas and Entain – might be able to wring substantial above-consensus profits if they pull the right levers.

• This includes a Netherlands rebuild, bringing to a halt any further sports-betting tech investment and a US exit.

• The team suggested there are more reasons why a buyer might like the look of Kindred.

• It has nine brands, scale especially in Europe, iCasino platform capability with Relax and net cash of €44m.

• To offset these pluses, Jefferies noted the minuses of a depleted top team, the 19% unregulated revenues and a likely price tag of ~€4bn or ~11x EV/EBITDA.

IGT: Another strategic review for the sector is now taking place at the lottery-to-gaming provider but this one appears on the outside at least to be less complicated. 

• Somewhat providing the reverse image to rival Light & Wonder, IGT hopes to sell-off or otherwise separate from its gaming and digital operations.

• It would leave it as a pure-play lottery operator and services provider.

• Analysts at Jefferies said the inbound queries from investors had centered on what the business might be worth and what it means for continuing IGT.

• The team suggested the business has “performed solidly if unremarkably” and that a higher valuation would possibly be enabled by the split.

• “If successful, as it has been for peer Light & Wonder, the event could bring forth Everi, which has also been challenged to maintain a multiple.”

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What we’re reading

Teed off: The home of golf hits out at the Saudi takeover of the sport.

Bunkered: Meanwhile, US Senator Richard Blumenthal has asked the PGA Tour and LIV Golf for communications and records related to their planned merger.

Calendar

• Jun 12-13: FSGA Summer Conference, Cleveland

• June 13-15: Canadian Gaming Summit, Toronto

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