Analysts believe ‘Betty Power’ won’t be the last major merger deal

paddypower

The markets have responded positively to today’s announcement by Paddy Power and Betfair that they are considering a merger. Betfair shares jumped 18%, while Paddy Power’s have increased by more than 15%.

In contrast, the share prices of competitors William Hill and Ladbrokes have dropped on the news.

Writing in the FT’s Lombard column, Jonathan Guthrie said that the merger was intended to ‘create a fast-talking, tech-savvy group worth more than £5bn that is as comfortable writing algorithms as it is treading the hallowed turf of Ascot’.

However he warned: “The partners have complex integrations of systems and cultures to execute. It should help that Betfair’s well-regarded chief executive Breon Corcoran will retain that role. The combination looks like a winning punt on paper. But so did a horse called Quantitative Easing that Lombard backed at Cheltenham this year. It crashed through the barriers, tumbled a photographer and made off in the direction of Cleeve Hill.”

Cavendish Corporate Finance has suggested that in amongst all the deals already on the table, including Bwin and GVC/888 and Ladbrokes and Gala Coral among others, that there is still more consolidation to come.

Jonathan Buxton, Partner and Head of Consumer at Cavendish Corporate Finance, commented: “Paddy Power’s proposed merger with Betfair is the latest in a wave of consolidation sweeping the gambling industry.

“Tighter overheads is one key factor behind the M&A drive, but increasing regulation is too. Despite the gambling industry contributing over £2 billion annually to UK GDP, it has never been viewed very favourably by Parliament and regulatory bodies have been keen to clamp down partly because many big bookmakers have located themselves offshore to reduce their tax burden.

“Securing economies of scale and cost savings through consolidation is one way the industry is trying to cope with the significant pressures it is under. Odds are high that the formation of ‘Betty Power’ won’t be the last sizeable deal in the sector.”

Meanwhile others in the market don’t like the direction that the exchange product is heading. Jason Trost, CEO and Founder of betting exchange Smarkets, commented: “I’m disappointed to see Betfair, who pioneered the exchange model, take yet another step away from its roots.

“Instead of embracing the value added through this model like Smarkets, it is morphing into yet another old-fashioned bookmaker. While this may bring short-term shareholder value, lack of innovation in the industry is damaging for consumers.”

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