The Online Gambling Industry: A Valuation and M&A Case

Patrik Brattelius & Johan Jintoft

Student thesis: Master thesis


The online gambling industry has been one of the most exciting markets in Europe during the last decade and is expected to grow with 9% annually in the upcoming years. Some of the companies in this industry are listed on the Swedish stock exchanges, and there have been more lining up for IPO’s during the process of writing this thesis. We are currently witnessing a consolidation wave in Europe where many online gambling firms engage in active M&A strategies. One of the main motives behind this consolidation trend is the regulatory environment, currently under transformation. As of today, all of the companies on the Swedish stock exchanges are based offshore in “tax havens” such as Malta. Countries around Europe are now preparing to introduce local licenses and apply domestic tax rates for the game winning revenue generated locally, which will most likely increase tax liabilities for the companies active on each market. The involved companies are now looking to develop smart strategies in order to handle future cost increases and regulatory amendments. Through our strategic analysis we found that Betsson is the most suitable target company among its peers since they are well-positioned to acquire a target given their proven historical capability of integration, scalable business model and multi-brand strategy. Given Betsson’s attributes we argue that Mr. Green would be a suitable target for them to acquire, since they could help each other to further build on their strengths and support each other in approaching future opportunities and threats. More specifically, we argue that Mr. Green could help Betsson to complement their geographical concentration and assist in extending their core product and service offering within casino and gaming. Mr. Green has been publicly traded since 2013 and for the last two years shown a negative net profit. This has mostly been due to tax provision liabilities in Austria. These provisions are precautionary and budgetary measures taken by Mr. Green and is retroactively compounded from previous years. Mr. Green disputes this tax allegations referring to EU legislation, but the court process is expected to take several years. These provisions have in the meantime hurt profitability and resulted in negative ROIC in FY14- FY15. However, given the anticipated industry growth and since these tax provisions are likely to shrink as the case resolves, Mr. Green’s ROIC could significantly improve. After conducting a financial statement analysis, we have estimated pro forma statements, from which we used a DCF- and EVA model to estimate the intrinsic value of Mr. Green’s equity to equal 1 554.7 MSEK, equivalent to a stock price of 43.09 SEK, and an 8% decrease from closing price as of December the 30th 2015. We have further estimated total synergies to equal 463.613 MSEK, yielding a resistance point of 2 008.3 MSEK. If the purchase price would end up below this point, we believe that Betsson should consider acquiring Mr. Green, realize synergies and thus create value to its shareholders.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2016
Number of pages154