INSIGHT
HUNTING THE BIG PL AYS
The year so far has seen a boom in M & A but there is plenty more business to be done . Julian Buhagiar surveys the affiliate-sales market .
THE AFFILIATE MARKET has been an increasingly active target for buyers throughout the majority of 2018 . RB Capital has managed some of the largest deals by size and volume , some of which have attracted buyers outside the gaming market for the first time .
Ahead of assessing the outlook on acquisitions for the short to medium term , it is worth looking back at the past 12 months to see why 2018 has really been a special year on the M & A front , even more so in the affiliate market .
By the end of June , the overall deal size of affiliate acquisitions had already surpassed the entirety of acquisition deals for 2017 . So not only have deals increased in value this year , they have been increasing at an accelerated rate . The current deal momentum in the affiliate space is the highest it has ever been .
This is especially of note when considering that an overwhelming majority of the acquisitions are affected by the same buyers , largely publicly listed entities . Given that the market capitalisation for these buyers is relatively easy to determine , such acquisitions become a crucial determining factor for future share price . In other words , the ( publicly listed buyer ’ s ) rationale for acquiring a specific asset is based on the calculated expected increase in share price , as opposed to the perceived net returns that such an asset will contribute to the business .
This perception fundamentally changes the buyer ’ s target list of ideal acquisitions , as well as the conditions for sale . For instance , the earnout factor ( that is , the portion of a sale that ’ s paid out over time depending on the seller ’ s ability to reach specific targets ) has substantially increased
“Affiliate acquisitions are expected to continue at the same rate for the next 18 to 24 months and well into 2020 ” in the last 12 months , as have the underlying criteria to satisfy such earnouts . Similarly , the amount of transactions involving a mixture of cash and share swaps has also started to change the affiliate M & A landscape .
What ’ s particularly interesting is the relative distribution of affiliate acquisitions across regulated , partially regulated and non-regulated markets . The split in regulated vs non-regulated sales ( bearing in mind that the lesserregulated sales rarely make the press ; thus , factoring in those transactions that RB Capital is familiar with and / or has managed ) is overwhelmingly increasing in favour of regulated markets ( see chart ). While the proportion of sales of affiliates in fully non-regulated markets has remained relatively constant over the last four to five years , there is a notable decrease in sales across partially regulated markets .
The reasons here are clear . Partly regulated markets are likely to become fully regulated in the short term ,
iGB Affiliate Issue 71 OCT / NOV 2018
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