Now that the deal to merge with Amaya is off, William Hill interim CEO Philip Bowcock and his team will be exploring all possible options to grow the company.
The failure to merge with Amaya follows a failed takeover bid for 888 Holdings, and the rejection of a subsequent takeover by 888 in partnership with the Rank Group.
In the update announcing the end of talks with Amaya, William Hill set out its current strategy:
“The Group has continued to focus on the four priorities set out by Interim CEO Philip Bowcock – online, technology, efficiencies and international – to deliver value for shareholders and will also continue to consider strategic alternatives where they have the potential to create shareholder value.”
A closer look at William Hill’s “alternatives” shows that future mergers and acquisitions cannot be written off, although they may not be headline makers like the huge proposed deals of the last year.
William Hill’s corporate objectives are in line with the rest of the gaming industry
At the heart of all gaming industry businesses lies the need to acquire customers, maximize revenues from those customers, and minimize costs while doing so.
There are four routes William Hill can take to increase its customer base:
Increase market share in existing markets
Fully 84 percent of William Hill’s revenues for the first half of 2016 came from its UK operations. The company is also an active player in the Australian market, with smaller contributions from its Nevada operations in the US, and also in other EU markets.
The UK and Australia are already extremely competitive markets, and short of new legislation to permit legal sports betting sites, there seems little for room for major revenue increases in the US.
William Hill’s online business may be improving, but it is still far from being a jewel in the company’s crown. There is scope for increasing revenues from such improvements. The half-year report announced:
“Early progress on Online turnaround strategy with Sportsbook mobile user experience redesigned in time for EURO 2016, mobile web and apps localized for four markets.”
However, the recovery of online market share is a tactical rather than strategic move. There won’t be a sudden step-change in revenue numbers.
Expand an existing market
To expand an existing market, William Hill needs to attract new customers who are not currently active gamblers, poker players or sports bettors, or cross-sell other products to its existing players.
All gaming companies are active in this same area, and in William Hill’s primary markets, any additional revenues will be hard to come by because the UK and Australia are at or close to a saturation point.
There are solid forecasts for sports betting growth to continue for a few more years in Europe, but the stunning levels of growth of the past few years cannot continue indefinitely.
Add new markets geographically
Entering new markets seems much more likely to provide a route to growth. To move from being a UK-biased business to being a global business is a tough journey to undertake, but overseas is where growth in online sports betting is most likely to be.
Many of the OECD group of wealthy countries already have legalized online sports betting, and William Hill has a toehold in many of them. In other such as France, online sports betting is so highly taxed as to make it extremely difficult to run a profitable operation.
The new Portuguese taxes are equally a deterrent to entering the newly regulated market, but William Hill has obtained a license for Romania.
The country is small and has a low average national income, but is an EU member state and should benefit from economic convergence with other EU nations.
William Hill is active in Russia, but according to sources quoted by Pokeroff, the company may be about to withdraw from the online poker market.
New laws have permitted online sports betting, but William Hill has no license, and the Russian authorities are clamping down (paywall) on online gambling companies.
In Brazil, there are new gaming laws making their way through the legislative process. “It would be one of the most significant events in the history of gambling if Brazil opened the sector,” said a William Hill spokesman quoted by the El Cronista newspaper.
Other possible markets where William Hill can expand or increase its market share:
- India — Recent Supreme Court rulings make online poker viable, but online sports betting is completely forbidden. Action to establish laws by individual states gives hope that the market may be more friendly to online sports betting in the near term.
- China — Another vast market, but difficult to penetrate, and again there is no legal online gambling country-wide. As with India, this may change in the future, but at present there is little to be expected in the medium term.
- Nigeria — Africa’s most populous country with over 170 million people, although annual GDP/capita is extremely low at around $3,000. There is a large middle class and widespread internet access, but much of the country remains undeveloped. Land -based sports betting is legalized, but the law makes no mention of online.
- Mexico — New gambling legislation has yet to make it through the final stages of the legislative process, but will present an opportunity when it finally passes, perhaps by the end of this year.
- Peru, Chile and Colombia — Outside Brazil, which is in severe economic and political crisis, these are three South American countries where regulated online gambling is likely to see growth. All either have or will shortly have new online gambling laws that are friendly to overseas operators.
Add new business verticals
Expanding the product range always risks some cannibalization, but can draw in extra customers who may have little experience of online gambling.
The development of the daily fantasy sports industry may have experienced many hiccups along the way, but it is beginning to get established in Europe. Over the summer, a number of Italian operators in the regulated market have added a DFS product.
Virtual sports betting is also taking off, after receiving a boost from this year’s EURO 2016 competition. William Hill is well positioned to benefit from growth in this area with a part of its sports betting site dedicated to wagers on virtual events.
William Hill has also entered the esports betting market, and although there is considerable uncertainty as to how rapidly and how far esports betting will grow, its potential is probably higher than any other sports betting product.
Innovation in gaming is running at a helter-skelter pace at the moment, and there is plenty of scope for William Hill to take advantage of the wider changes in the industry as well as offering its own in-house innovations.
Another big merger or takeover proposal
If William Hill seeks to expand its customer base by merging or taking over another online gaming business, it has very few options left.
Taking the top ten gaming companies by online revenue (William Hill ranks fourth) it is clear that merging with or taking over any of them will not be easy.
- Bet365 — As a private company, Bet365 is only going to make a corporate deal with William Hill if founder Denise Coates decides to do so — she owns more than 50 percent of the company.
- PaddyPower Betfair — Paddy and Betfair are still working through their own merger which completed in February this year. Not only are they not ready to go through another major merger process, it is difficult to see a corporate rationale for merging with William Hill that shareholders will support.
- Amaya — William Hill shareholders rejected the merger with Amaya, but if Amaya launched a bid for William Hill, they might change their minds. Amaya’s board supported the strategic rationale for the merger, now all they need is the cash to turn that into a takeover. Unfortunately this is not something the company will be in a position to do for the next few years.
- GVC — GVC looks to be making a good job of integrating bwin.party into its operations, and the company was rumored to be in talks about acquiring Amaya. Perhaps a tie up with William Hill could be on its agenda in the next year or two, but as to being taken over by William Hill, that probably wouldn’t play well with shareholders.
- Ladbrokes Gala Coral — Ladbrokes and Gala Coral are expected to finalize their merger in the next few days. Again, the possibility of an early deal with William Hill looks to be negligible.
- Unibet — CEO Henrik Tjärnström has provided Unibet with steady growth over the past few years; the company is now valued at around $2 billion. The company is very strong in Scandinavia, but also has a presence in several nationally regulated markets. There may be good geographic benefits from a merger with Will Hill, and Unibet’s proprietary poker platform may be a good new home for players currently on the iPoker network. It is one of few possible targets that may attract William Hill.
- Betsson — With a market cap of $1.3 billion, Betsson offers similar Scandinavian expertise to Unibet, but at a lower price. Ulrik Bengtsson stepped up as CEO and president for Betsson AB in March this year. On appointment he said, “Our strategy to grow both organically and through acquisitions remains.”
- 888 — Having fought off one takeover bid by William Hill, it’s unlikely that 888 would accept another, even though 888 managed to find good reasons why the companies should merge when it launched its own bid earlier this year.
- SkyBet — SkyBet is owned by private equity company CVC Capital. CVC will eventually want an exit from its investment, and may be open to an offer from William Hill. However, SkyBet’s largely UK player base seems to have little of strategic value to offer to William Hill.
Bolt-on acquisitions may better support organic growth
As an alternative to making a massive deal that needs shareholder approval, William Hill could grow semi-organically, by picking up some of the smaller operators who are not managing well as stand-alone businesses.
This strategy would work both to expand existing market share and as a route to expanding or entering markets in other countries.
Smaller acquisitions are easier to absorb than big ones, and as the gaming industry is refocusing on larger companies, many smaller operators are finding it difficult to continue as standalone operations.
William Hill remains in good shape even without Amaya
With online recovering, and operating profits for 2016 forecast in the range of £260-280 million ($319-$343 million), William Hill is big enough not to need a partner to get further economies of scale.
However, if it wants to shift its current UK focus to replicate its success globally, the path of organic growth will take it a very long time.
