Some private equity investments are themselves a gamble, but that hasn’t stopped UK private equity firms from placing bets in the gambling sector – or, as the industry prefers to call itself, the gaming sector.
Hermes Private Equity, the private equity arm of Hermes Pensions Management, made its first play in the gaming sector in March of this year with the acquisition of Mayfair Gaming, a bingo operator with eight clubs across the UK, including Aberdeen, Bristol, Brighton and two sites in Newcastle, with a further site planned to launch later this year.
As part of a planned buy-and-build strategy, Hermes Private Equity has now backed Mayfair Gaming’s buyout of Thomas Estates, which owns Beacon Bingo and Showboat, operators of three large clubs and 24 adult gaming centres respectively.
One of the largest UK gaming buyouts was completed at the end of last year when Gala, the country’s largest bingo operator, acquired Coral Eurobet, a bookmaker owned by Charterhouse Development Capital, a UK private equity house. Gala, owned by buyout firms Candover, Cinven and Permira, paid £2.18 billion to create an enlarged group with an enterprise value of over £4 billion, trading from 1,450 outlets with more than 2.2 million customers.
Outside of the UK, BC Partners, a London-based buyout firm, acquired a majority stake in hotel and casino operator Hyatt Regency from Hellenic Casinos in a €950 million deal in January of this year. The Athens-listed business has operated casinos in northern Greece since 1996 and more recently launched a casino in Albania.
BC Partners is also understood to have shown interest in the Coral Eurobet auction and Ladbrokes, a bookmaker owned by the Hilton Group, as well as Gala.
“The gaming industry is cash generative, which helps,” says Ward. “We’re not a sector-focused fund, although we like the leisure sector, but gaming in particular is very attractive, especially given the upcoming benefits of deregulation.”
In Britain, deregulation will derive from the Gambling Act, which comes into force next year. The controversial act has proposals for several “super casinos” and several larger regional casinos, the relaxation of how machines operate and how much they can pay out, as well as permission to show adverts for gambling other than the National Lottery to appear on television.
“There will be a number of changes that will be positive,” says Ward. “A lot of it is around machine classification, which will impact on the stakes and prizes that can be given out. With the stakes raised higher, including the option of rollover prizes, that will be more attractive to consumers.” This in turn means more members and more turnover.
The Gambling Act has caused a stir in the UK, with a number of consumer groups concerned by that it will increase the number of gamblers in the country. Ward, however, says that there are few ethical concerns for private equity investors: “We’ve never had any issues with our investors regarding gambling. It’s a well-regulated business in the UK.”
With the Gambling Act likely to open up an already fragmented market and gambling likely to be a focus in the media next year, private equity firms are likely to be betting on the gaming industry for some time to come.