Moody’s: Mergers And Acquisitions Is the Future of the Gambling Industry

The ongoing merger between Flutter Entertainment and The Stars Group /TSG/ has a real chance to make the decisive step towards completion this week, after on Tuesday the shareholders of the Irish-based gaming operator have almost unanimously approved the deal, and the stock holders of the Toronto-headquartered company will have their say Friday, April 24.

Industry-Wide Consolidations Expected

Though the consolidation of both businesses started way before the current health crisis to swipe away the gaming industry, among many others, Moody’s considers mergers and acquisitions /M & A/ to be the prevailing model that will shape the future gaming business landscape for the post-virus era. Analysts Florent Egonneau and Jeanine Arnold expect a wave of business consolidation to happen as soon as the coronavirus-induced crisis subsides.

In its essence, the approaching to completion merger between Flutter and TSG is a tie-up between an online operator and a company that owns and operates land-based facilities. The current closure of the brick-and-mortar business, to help support the health risk mitigation measures widely adopted to combat the spreading virus, emphasized the need for diversification for this type of companies. On top of that, TSG recently reported a surge in player activity for March, the month casinos closure commenced, that would lead to an estimated 27% year-on-year jump in its Q1 revenue.

Business Sustainability Through Diversification

Another factor that drives the channeling of people to online gambling is the lack of sports after the collective embrace of the call to self-isolate. Consequently, that led to poor offerings from sports betting companies who even reached to some unpopular sports in an attempt to fill the gap and hold onto their clients. It turned out versatility in terms of verticals could be vital for business sustainability.

Subsequently, casino operators will look to add online gaming options to their land-based gambling type of businesses, to provide versatility in operations and resistance to adverse situations.  According to the analysts from the credit ratings agency, the most efficient way to achieve that is by merging with or acquiring an already established online company.

Financial Muscles to Expand Market Share

From another point of view, the current situation placed enormous pressure on the foundation of most of the gaming companies, testing their durability and draining their reserves. Most of them started implementing cost reductions through company-wide furloughs, as well as liquidity boosts by looking for credit line extensions and debt covenant suspensions.

Some industry operators were in a better financial position before the health crisis and they will come out of it stronger compared to the others. The decrease in the stock prices for the industry will provide them with a chance to take advantage of the devaluations from the depreciated stock to increase their market shares by acquiring new assets at reduced prices, Moody’s analysts continue.