The key to business operations as the world begins to return to a new sense of normal is flexibility, according to Grant Johnson, CEO, Esports Entertainment Group.
Johnson explained that the global pandemic has been one of the most turbulent, and largest economic issues that has faced the world since the Great Depression, and when it comes to business valuations, that cannot be ignored.
Taking part in the panel titled KPMG: Europe – Anticipating the next wave of M&A, Johnson was joined by Ben Robinson, Co-founder, RB Capital Advisors, Robert Andersson, CEO, Net Gaming Europe AB, Cormac O’Brien, Chief Financial Officer, Flutter Malta and the panel’s moderator Hermione Arciola, Partner, KPMG Malta.
Johnson explained: “The key here is flexibility. What we’ve seen is that there are three distinct groups: there’s the casino operators which have had the escalated activity and their tendency is to try to capture multiples on the current activity. On the sportsbook side of things, things are the exact opposite. Generally, they’ve had a substantial drop in activity, so obviously they want to go back to valuations pre-COVID.
“But we can’t simply ignore the biggest economic issue that has faced the planet since the depression. So again, we have to figure out a way to make that happen. On esports, it’s a little bit more towards the casino side because they’ve come from a culture which has been mainstream for over a year now, but the escalation in attention has led to some creative structure in how people are coming up with their valuations.
“We’re seeing that companies are losing millions by valuing themselves at many, many multiples of revenues. It has impacted all of our discussions, there’s no denying that. But I think that as long as you have two willing partners, and you can come up with a structure that is going to be a combination of future benchmarks and valuations of revenues and EBITDA, so that when we come out of this, the owners or sellers are going to participate in the up-side whenever things get back to normal.”
O’Brien also highlighted that the disruption caused by COVID cannot be ignored, and explained that completing the merger with The Stars Group during the pandemic was a ‘strange situation’, emphasising that the economic description has affected all areas of business.
He added: “At Flutter, I suppose the major impact that we’ve seen is on the sports betting side of the house, as well as the retail. Our shops were closed across various countries, UK and Ireland specifically and a lot of sports events had to be closed down.
“What I can speak about is our strategy that has just been implemented via our merger. What we have seen is a lift in online poker – obviously as an entertainment product which has been very positive. Our geographic diversification across the US and Australia has also been a positive for us, because racing was still occurring behind closed doors so there was a lot of betting still occurring.
“But when you introduce volatility into any valuation, it’s going to bring down the value generally. People generally like stability, but when you bring in something as volatile as what’s just happened, we still don’t have any certainty on how we’re going to control this in the future. So all you can do as an accountant is come up for assumptions and valuations for the future.”
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