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Acquisitions: No Magic Formula

Acquisitions are an integral part of Betsson Group’s strategy as we continue to grow.

An insightful article on McKinsey.com quite rightly states that there is no magic formula to acquisitions and despite many ideas on how it should be done there are only a handful that are likely to be successful.

Betsson’s acquisition strategy is to focus on targets within Europe but outside of the Nordics and preferably in markets that are regulated or have a clear path to regulation. This does not rule out a Nordic acquisition but we prioritise targets outside the region.

Known

Betsson Group’s acquisitions

Further considerations are made when it comes to smaller strategic acquisitions to get access to licenses, products or technology. We like companies that are becoming subscale in the face of regulation with an increased pace of technological development. In these cases we can can extract significant synergies and improve performance of the target, through our proprietary technology solutions.

As the article by McKinsey stated, acquisitions like any other business process, are not inherently good or bad, just as marketing and product development aren’t. Each deal must have its own strategic logic. Acquirers in the most successful deals have specific, well-articulated value creation ideas. For less successful deals, the strategic rationales —such as pursuing international scale, filling portfolio gaps, or building a third leg of the portfolio — tend to be vague.

In McKinsey’s experience, the strategic rationale for an acquisition that creates value typically conforms to at least one of the following six archetypes:

1) Improving the performance of the target company,

2) Removing excess capacity from an industry,

3) Creating market access for products,

4) Acquiring skills or technologies more quickly or at lower cost than they could be

built in-house,

5) Exploiting a business’s industry-specific scalability, and

6) Picking winners early and helping them develop their businesses.

McKinsey also states that an acquisition’s strategic rationale should be a specific articulation of one of these archetypes, not a vague concept like growth or strategic positioning, which may be important but must be translated into something more tangible.

This is in line with Betsson’s acquisition strategy and there are a number of examples of this. In the acquisition of Netplay we focused on where we believe we can improve the performance of the target company.

In the acquiring of Tonybet and Premier we focused on creating market access for products where we acquired the licences in order to get access to the markets.

Following the same line, we also created market access for products through the acquisition of Racebets, a world-class racehorse betting product, that allowed us to gain skills and technologies faster and cheaper than could be built in-house.

We also exploited scalability by acquiring and migrating companies to our own platform as we did with NordicBet, Betsafe, Oranje & Kroon and Europe-Bet.

However, even though an acquisition may be based on one of the archetypes, it won’t create value if you overpay.

As the Mckinsey article states, the way to create value from an acquisition is to buy cheap—in other words, at a price below a company’s intrinsic value. To gain control of a target, acquirers must normally pay its shareholders a premium over the current market value.

By focusing on the types of acquisition strategies that have created value for acquirers in the past, managers can make it more likely that their acquisitions will create value for their shareholders.

Betsson has a solid track record of value-creating M&A. We have been buying assets that have been clearly EPS accredited and assets where we have gained very strategic resources.

Betsson intends to continue to execute on this strategy and grow organically as well as through acquisitions.

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