Speculation on Possible Mergers in Online Gaming Industry
March 24, 2009 (CAP Newswire) — Addressing the growing speculation that the online gaming industry is headed for a wave of mergers and consolidation, the U.K.'s Guardian newspaper has published a story outlining the possible benefits to such actions.
"Mergers between existing operators could lead to substantial savings, given the widespread duplication of operating and software costs,” writes Nick Fletcher in the article. Fletcher goes on to run down the list of pros: smaller gaming companies could gain instant market position by merging with larger rivals; strategic advantages to pooling resources in a niche market; elimination of third-party royalty costs; better economic positioning during the current downturn; among others.
The article goes on to speculate about possible mergers among rival companies 888, Sportingbet, PartyGaming, and Bwin, laying out a variety of scenarios in which these companies could benefit from pooling their resources and market share.
Quoted prominently is Ivor Jones, an analyst for Evolution Securities: "Long talked about, we believe the sector will start to consolidate soon. … Current trading news across the sector is, by and large, not great. The recession and increasing secular maturity are combining to deflate near-term growth expectations. The longer-term benefits of deregulation are still some way off. When merger and acquisition [activity] starts there is likely to be rush of deals by companies which don't want to be left behind and we expect share prices to rally rapidly. Investors who want to play the consolidation theme should take positions now."
As always, though, the specter of the UIGEA overshadows all such online gaming business speculation. Fletcher admits that the companies would be unlikely to take these kinds of steps before any long-standing settlements with the U.S. Department of Justice are made.