The last resort
Can London regain its status as a listings hub for online gambling operators?
Deal Talk special: can London once again be the listings hub of choice for internationally minded online gambling operators and suppliers?
A timeline of news regarding the activist maneuvers at Penn Entertainment.
Plus a round-up of all the latest deals.
Quit holdin' out and draw another breath.
London calling
You know I love a London boy: The failure of Games Global to go through with its $2.13bn New York listing plan was a blow for the sector, given it was destined to be the largest betting and gaming sector public market event of the year.
One door opens: The pulling of the float, coming barely a month after the gaming supplier announced its intention to go public, showed just how difficult companies were finding the public company space and follows on from a number of either failed or struggling New York listings.
It highlighted how New York is maybe losing its shine as far as the sector is concerned.
But if the US is losing its appeal, does that mean that London might once again become a home for a sector that previously saw great appeal in tapping up UK investors?
You know what they said, well some of it was true: London’s heyday as a listings hub for both domestic and globally focused online and land-based betting and gaming companies came in the mid-2000s, when companies such as PartyGaming, 888 and Playtech alongside then domestic betting giants such as Ladbrokes, William Hill and Betfair found a listed home on the London Stock Exchange.
That has now diminished to a rump of UK-listed companies headed by Entain, Evoke (the new name for 888), Rank and Playtech.
Behind them are a small handful of listed minors including Gaming Realms and gaming affiliate providers XLMedia and B90 Holdings.
Meanwhile, the biggest of the lot, Flutter, has recently achieved its primary listing in New York and could well leave behind its UK listing altogether in the coming years.
On a rainy night in Soho: As it stands, due to the impact in the past three years or more of regulatory pressures in the UK and what might be termed a wider backdrop of UK investor apathy, it is difficult to make a case for London once again being a vibrant market for any gaming entity to make the UK its listing domicile.
But the lack of alternatives for those looking to raise public capital might, in the words of one capital markets advisor, make it the “last resort” for those hoping to list.
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City limits
Visit London: The biggest plus for any company within the sector looking at a potential London float is the UK government and the financial and listing authorities are well aware that, in a general sense, the country needs to sharpen up its act when it comes to enticing companies to go public.
Possibly as early as this month, the Financial Conduct Authority is set to approve the biggest overhaul of the UK’s listing rules for a generation.
This follows the launch of a consultation in December of proposals that, the FCA said, would offer a “more accessible, effective and competitive” listing regime.
The proposals include less scrutiny of M&A transactions and allowing for dual class share structures.
Against the tide: One corporate financier pointed out the UK market has been struggling to counter a number of headwinds, from Brexit to higher inflation, the war in the Ukraine and the outflow of cash from equity funds.
“It has all made the outlook for companies more uncertain and destabilized plenty of businesses that really needed stability and predictability in order to invest in their future,” the source added.
In a LinkedIn posting, Charles Hall, head of research at Peel Hunt, said the UK market has to “stimulate increased domestic demand – from pension reform to encouraging retail investors through a UK ISA to establishing a UK national wealth fund.”
On a recent Peel Hunt podcast with Hall, Jon Prideaux, director and former CEO at UK-listed payments outfit Boku, said the regulations involved in being a public company were putting companies off going down the public route.
“I think the IPO process is broken,” he told Hall. “There is a chasm between public and private, and leaping the chasm can be very difficult, high risk and random.”
“Private companies are staying private for longer and that’s partly because of the regulations.”
Location, location, location: But the good news for the UK – such as it is and despite the high-profile defection of companies such as Flutter – is, as Prideaux puts it, the US stock market is “arguably more broken than the UK.”
“You have to be a multibillion-dollar company and you have more onerous regulation in terms of Sarbanes-Oxley,” he added.
Hence, if the FCA acts to make the market more user-friendly, it will play into what Prideaux says is a “sustainable competitive advantage” that London has over New York, which is that it can cost-effectively support a public company at a smaller scale.
“You have to compete on the battleground where we have a chance of winning and if you compete for the largest companies all the time you will probably lose,” he argues.
“But the disadvantage of New York is that you have a tremendous burden of regulation and litigation risk.”
The circle and district line
You just haven’t earned it yet, baby: In the wider UK-listed realm, one corporate advisor says, there has been something of a re-rating but that doesn’t hold true for the betting and gaming sector, which, as far as investors are concerned, remains mired in continued regulatory uncertainty.
“The listed betting and gaming stocks are all trading on lowly multiple,” adds the advisor.
While there is a need for regulatory certainty, investors also need to see “some consistent, decent earnings upgrades.”
“You need these companies to meet and beat expectations.”
Atlantic crossing: Another pain point for sector proponents is the extent to which in the last five years New York has been the only game in town for betting and gaming floats. Companies that might once have sought a listing in London – Super Group, Sportradar, Gambling.com, Genius Sports spring to mind – have instead beaten a path across the Atlantic.
Vote of no confidence: This continental shift is perhaps typified by the UK’s largest betting and gaming entity opting to move its primary listing to New York, which it completed late last month.
Show me the money: Yet, the track record of recent betting and gaming-related floats is mixed. Many exploited the now out-of-favor SPAC route to hasten their pathway to a listing and have struggled to gain traction with investors who are more interested in the US narrative rather than hearing about global ambitions.
Size matters: Moreover, unless a company is of a certain size, it is in danger of being ignored by US investors. “If a company lists in the US and it is less than $1bn in market cap, it will get zero investor interest,” according to one capital markets source.
“It works for mega cap, for a company like Flutter,” says one dealmaker.
“But it is simply not realistic for a $500m market cap company to land in the US and think it can generate strong and sustained investor backing.”
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It’s a London thing
Eliminate the impossible: If New York is no longer truly an option for many, it leaves companies seeking an IPO with few realistic options.
Still got it: “Maybe it is a bit biased but I would say the London market as a listing venue has a demonstrably world-leading record in bringing gambling sector companies to market and enabling access to capital for them to execute their strategies and achieve growth to a level at many multiples from where they were before they floated,” says the London-based corporate financier.
“Whether that is Flutter, Entain or Playtech, all these businesses have successfully grown from being relatively small at IPO to being world leaders in what they do,” they added.
“London is still the best market in the world to IPO if your valuation is less than $5bn, to access capital to grow, and have the ability to be a consolidator and market leader.”
This is the world calling: Historically, London has excelled in the past in attracting companies with a focus outside of the UK. Think PartyGaming and the original incarnation of 888, for instance, or Playtech.
“The UK market has always been a trendsetter with many of the major operators, whether private, listed in the US or listed elsewhere having a significant presence here,” says David McLeish, a partner at London law firm Wiggin.
“There is a continued appetite to plug into the knowledge of the UK gambling advisory community given the M&A track record.”
Buy British: But while the UK listing rules are likely to be loosened in the coming months, the corporate financier warns that those looking at a potential listing in London should still view any move as a strong commitment to UK listing standards.
“Companies have to think of themselves as being a UK-listed company,” they add. “That means managing expectations, being predictable, making sure you understand the listing regime.”
Further reading: a cautious revival of the London IPO market.
Further listening: Why a potential $64bn London IPO is controversial.
The big deal
Penn and ink: Recent activist investor activity and unease over the company’s mishandling of the online opportunity allied to upset over executive pay could yet be the precursor to a bid, with Boyd Gaming and Hard Rock the names in the frame
Read E+M’s recent coverage:
Rebels rattle Penn: Yesterday, Penn’s investor revolt.
Poisoned Penn: There is a limited number of potential buyers but a lot of strategic sense in a Penn sale.
Up for grabs: Donerail issues a letter severely criticizing Penn’s management.
How d’ya spell egregious? Penn faces questions about its online strategy and its levels of executive compensation.
Wheels up: E+M reveals details about Penn’s corporate jet usage.
+More deals
Elys BMG has sold its Italian-facing operation Newgioco to an undisclosed buyer for an undisclosed sum. Newgioco is a minor player in the Italian market. In Elys BMG’s last communication, the company said its Q1 earnings report was delayed, telling the SEC it was unable to complete its 10Q in time.
Buzz Bingo is in discussions to buy two Merkur bingo clubs in Cricklewood, London, and Northampton for a rumored £15m-£20m from owner Gauselmann.
Buzz is owned by Intermediate Capital, which in December last year was reported to have appointed bankers Nomura to look at a potential sale of the business.
Calendar
Jun 18-20: Canadian Gaming Summit
Jul 17-20: National Council of Legislators from Gaming States, Pittsburgh
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