William Hill (LON: WMH): Why Are PE Firms Eyeing UK Gambling Companies?

Summary

• The massive growth in the UK online gaming industry during the pandemic lockdown has raised significant investor interest in the sector.
• In October, US gambling and hospitality giant Caesars Entertainment agreed to purchase British online gaming firm William Hill for a whopping $3.7 billion.
• The second lockdown will only go on to increase the business volumes of online gambling.

 

The rapid growth in the online gaming and gambling industry after the outbreak of the Covid-19 has been enticing massive interest amongst PE firms as well. The recent acquisition of British online gaming firm William hill US gambling and hospitality giant Caesars Entertainment for $3.7 billion, is a positive sign that more such consolidations are on the cards. William Hill, which saw its physical stores’ revenue weaken during the pandemic, is scheduled to use the cash from the deal to stabilise its business and expand its online gaming platform.

The United States, which had legalised online gaming in 2018, can see a massive growth taking place in the near future. Private equity firms like Apex Partners, CVC Partners and Apollo Global Management have also thrown in their hats into the ring and are looking for suitable deals which can help them enter the arena of online games.

The second lockdown that has been imposed in the UK from 5 November 2020 will only go on to increase the business volumes of online gambling, which will enhance the fortunes of the online gaming business in the country.

Online gaming in the UK

Online gaming industry reached new heights this year in the UK because of the pandemic. Hundreds of online gaming websites have come up during the past few months, which are offering a wide range of gaming choices. According to the data provided by the gambling commission operators, Gross Gambling Yield (GGY), there has been an increase of 115 per cent on live event betting between May and June (SURE?).

While some may argue that this was because of the huge pent up demand that had built up during the lockdown, when most of the live events were suspended, commission data shows that online casinos also benefited during the period. As most people were home and were online for a longer period of time, the online gambling industry saw  massive growth. Also, the online subscription-based video gaming industry saw a spike in its subscription in the same period.

Growth prospects

The United States is the home to some of the largest gambling companies in the world. The cities of Las Vegas and Atlantic City have the highest concentration of gambling businesses and make millions in through gambling. However, despite the enormous size of the gambling and gaming industry, online sports betting was illegal. The Amateur Sports Protection Act 1992 had barred state-authorised sports gambling except in Nevada, California.

After a long legal battle, in 2018, the Supreme Court quashed the law making it legal for states to enact their own regulations for online gambling.

UK in focus

William Hill has a significant online sports betting segment in the United Kingdom. Its association with Caesars Entertainment would help it increase its footprint. Its experience and its technology platform will help Caesars to scale new heights and have the edge over others who are trying to enter the industry. With the US being one of the largest gambling markets in the world, the growth prospects of a new business segment are significantly higher, which represents a big opportunity for PE firms to invest and make profits.

Thus, the increase of online gambling post-outbreak of the Covid-19 and the opening up of the sports betting market in the United States are two main reasons for the renewed interest of picky investors in this industry.

Life after Covid-19

The pandemic outbreak has brought about significant changes in how people live and how the future can look like. Online gaming and gambling have caught everyone’s fancy as people looking for ways to earn some extra money. Online gambling and online gaming have gained popularity as a recreational activity with companies giving their customers a number of different options to play and bet simultaneously. This intersegment online offering has seen significant growth in the recent past.

This intersegment online offering has seen significant growth in the recent past. The second lockdown can lead to more growth in the online gambling industry.

William Hill plc (LON:WMH) share price performance on LSE over the past three months

 Three months share price chart (Source- Thomson Reuters) 

As on 9 November 2020, the share of William Hill Plc was trading at GBX 270.60 per share (10.38 AM GMT+1) losing 0.22 per cent over previous day’s close.