The British pound could plummet, but acquisition specialist, Partis Solutions partner Paul Richardson, asserts that the underlying factors suggest the outlook for mergers and acquisitions in the gaming sector hasn’t fundamentally altered.
The pound’s volatility may not alter the outlook for mergers and acquisitions, experts claim.
On September 23, newly appointed Chancellor Kwasi Kwarteng unveiled a series of tax reductions, dubbed a “fiscal event,” which was widely perceived as a budget statement in all but name. The plan outlined the government’s economic priorities for its agenda as it confronts a winter of high inflation, energy shocks and a projected recession.
The budget indicated that the new agenda may be highly conservative, characterized by substantial tax cuts, a reduction in stamp duty and a reversal of recent increases in National Insurance contributions.
Markets reacted negatively to the budget due to a number of factors, including the stimulative effect of tax cuts in an inflationary period, uncertainty about the Bank of England’s stance on interest rates and long-term questions of fiscal sustainability.
Consequently, the UK is facing a pound crisis, with financial traders engaging in speculative attacks on the currency’s value, causing the pound to depreciate significantly.
The British pound is currently exchanging hands at $1.06, a decline from $1.17 on September 12th and $1.35 a year prior.
The pound is not only below its 1985 low, but also traded at its most minimal value since decimalization this week.
This indicates that, from the viewpoint of businesses in other areas, UK-listed companies are now less expensive than they were a week ago, prompting inquiries about whether this will significantly alter the future merger and acquisition landscape.
**UK Merger and Acquisition Outlook**
Merger and acquisition expert Paul Richardson dampened hopes of new deals. Although prices may have decreased, the lending environment remains difficult for acquisitions.
“If you desired to secure financing to purchase something now, it’s nearly impossible, regardless of the market you’re in,” he stated. “Leveraged finance has been a significant driving force, and it’s currently very expensive — making it more challenging.”
In October 2021, DraftKings withdrew its attempt to acquire Entain for $22.4 billion, after MGM had also made a bid earlier that year. It is unclear whether a large US operator could achieve a similar acquisition given the current funding difficulties.
“If MGM were to acquire Entain today, they would still need to locate a substantial amount of capital to pay for it — I believe that would be a challenge. They clearly have a strong relationship with Bank of America, but their acquisition would necessitate a significant amount of funds.”
In the realm of specific acquisitions, a prevailing challenge is the scarcity of highly appealing UK enterprises, each possessing its own distinctive allure.
“In essence, there isn’t a suitable candidate at present, as their profit-generating avenues also pose a hurdle. Flutter’s immense size renders it practically unattainable, while Bet365 is unlikely to be acquired in the foreseeable future. Moving down the scale, 888 is burdened with significant debt, rendering it unsuitable for this particular opportunity.”
The situation isn’t entirely devoid of advantages.
What ramifications could this crisis have on the industry beyond mergers and acquisitions?
Although the medium-term economic outlook for the UK gambling sector was already gloomy prior to the budget announcement, certain analysts maintain a more optimistic stance. Analyst Regulus Partners highlights that Kwarteng’s budget could serve as a catalyst for revitalizing the stagnant online sector.
“The UK economy is heavily reliant on consumer spending, which accounts for approximately 60% of its gross domestic product. The new government’s fiscal strategy is clearly geared towards safeguarding and stimulating this spending, rather than suppressing it in favor of asset inflation, a policy adopted by international governments since 2008.
“Consequently, as the specific gambling factors that precipitated the decline in online revenue during the initial half of 2021 diminish, and with the new government prioritizing consumer-centric economic growth, we anticipate a significant increase in the likelihood of a modest but substantial economic recovery within the UK online industry.”
However, Regulus highlights that the economic recovery might not extend to the retail sector. The external pressures could be too intense for even a boosted consumer market to handle. “Whether this applies to retail gambling is a separate matter, though. With pedestrian traffic, cash use, and rental expenses remaining precariously uncertain, there is little optimism.”
Regulus continues by arguing that subsequent developments may signal a fundamental change that threatens the very existence of traditional retail betting. “Swift economic changes and increased interest rates could further accelerate the actual channel shift, which in our view will eradicate the last remnants of ‘transactional’ retail betting. The long-anticipated ‘future’ of multi-channel, entertainment, and community-driven land-based experiences should become crucial for survival.”
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