If we could describe 2015 with just a few words and within the context of gambling, we could say that it was the year of strategic mergers and acquisitions between fellow gambling operators. Last year, we saw some of the world’s biggest gaming companies consolidate operations in a bid to secure profitability and to offset the impacts from the recently introduced UK Point of Consumption tax and the EU VAT.
There have not been any major merger and acquisition deals between operators since the beginning of 2016. However, private equity firm CVC Capital Partners recently acquired a controlling stake in German privately held sports betting and gaming company Tipico. This has not been CVC’s first foray into the world of gambling. The company had previously invested in gambling giants William Hill and Sky Betting & Gaming.
However, it could be said that CVC’s decision to acquire a majority stake in the German operator came as a bit of a surprise. Given the fact that the private equity firm had formerly purchased stakes in two UK-based gaming and sports betting companies, with the two of them being well-known and established businesses, CVC’s choice to invest in the German market, which is known for its somewhat bizarre gambling regulations, is, indeed, an interesting topic to be discussed.
Under Germany’s new State Treaty on Gambling, which was actually passed almost four years ago, up to 20 licenses for the provision of sports betting options across the country were to be issued. A number of applications had been filed by gambling operators, both local and international ones. However German authorities decided that 35 betting companies met the requirements and 20 companies were selected to be granted a license.
That decision was not welcomed by the other operators that met the requirements and they brought the matter to court. Being among the leaders in the provision of betting services in the country, Tipico was one of the companies to challenge German authorities’ ways of handling the situation in court.
Due to the numerous court cases, no licenses have been granted yet to the approved candidates. This resulted in the European Court of Justice scolding the country’s authorities.
Yet, despite the fuzzy situation with the German gambling regulations and the possibility for a resolution not to be found anytime soon, it is really important to note that Tipico could be defined as a worthy investment. The company is, in fact, the largest privately held gambling business to be operating within the country’s borders. Annually, it generates an approximate of €500 million in revenue and handles an average of €2.5 billion in processed bets. In other words, Tipico currently holds half of the domestic market.
Tipico was put up for sale by its founders earlier this year. It was reported in April that Deutsche Telekom and private investment group Centerbridge had joined forces to bid for the gambling company. Under their agreement, Deutsche Telekom would have bought a minority stake in Tipico in a bid to add to its current revenue sources and to expand its reach beyond its traditional operations. As for Centerbridge, it would have acquired a controlling stake in the gambling operator. The bid was reported to have amounted to an approximate of €1 billion.
Later that month, it became clear that CVC was selected as the preferred buyer of the sports betting company. Many believed that the current gambling situation in Germany could have affected Tipico’s purchase price and could have scared off potential bidders. As it seems, this may not be absolutely true. Although no financial details about the transaction were disclosed, industry sources have said that CVC will probably buy the gambling company for the amount of €1.4 billion. In addition, the private equity firm is to acquire a 60% stake in Tipico. More details will likely emerge in the weeks to come as the transaction is currently subject to approval from relevant authorities.
As already mentioned, CVC acquiring a majority stake in the German company is not its first foray into the gambling industry. Back in 1999, the private equity firm together with fellow Cinven bought William Hill, known to be one of the largest sports betting and gaming operators, for £825 million. In addition, last year, CVC purchased an 80% stake in online gambling company Sky Betting & Gaming. It paid the amount of £800 million for the purpose.
Both William Hill and SkyBet are established companies with operations in a number of regulated markets. It is true that Tipico also operates in several countries with clear-cut gambling regulations. Yet, its German roots make the operator a bit less expected choice for a private equity firm known for investing in some of the world’s biggest gambling companies.
Now is not the time to say what the results from CVC purchasing the German privately owned gambling company and what the future of the said company would be. However, it is clear that the private equity group is entering a market with a challenging gambling environment and will certainly face difficulties in getting accustomed to the German gaming and sports betting reality.
