FDJ's Bold Move: Unpacking the Strategic Acquisition of Kindred Group and its Implications for the European Gambling Landscape

La Française des Jeux (FDJ), the French national lottery operator, recently made headlines with its confirmed €2.45 billion offer to acquire Kindred Group, raising questions and curiosity about the motivations and implications of such a significant deal in the gambling industry.

This move by FDJ follows a series of strategic acquisitions, indicating a pronounced shift from its traditional monopoly. In the months leading up to the Kindred deal, FDJ completed the €175 million acquisition of ZEturf in October and secured a €350 million bid for Premier Lotteries Ireland in November. These strategic moves suggest that FDJ has been actively seeking expansion opportunities beyond its established framework.

Ed Birkin, a senior analyst at H2 Gambling Capital, notes that while FDJ's intent to diversify and grow beyond its traditional lottery operations has been evident, the Kindred acquisition marks a major step-change in its strategic trajectory. "It's been clear for a while that FDJ are looking to expand into new markets and out of their traditional monopoly, with the acquisition of ZEturf and Premier Lotteries Ireland, but this is a major step-change in their strategic shift," Birkin says.

FDJ's acquisition strategy aligns with broader industry trends where gambling operators are increasingly diversifying their portfolios to navigate the evolving landscape and tap into various segments of the market. The Kindred acquisition, in particular, provides FDJ with access to a multi-product, multi-jurisdictional B2C (business-to-consumer) and B2B (business-to-business) operation.

The Kindred Group, one of the top five players in Western Europe, operates in seven of the top ten markets in the region. This expansive market access positions FDJ as a major player in the Western European gambling market. The deal also offers FDJ access to Kindred's expertise in online gambling technologies, particularly in the lucrative iGaming space, which constitutes 60% of Kindred's revenues.

The purchase offer from FDJ stands at SEK130 per share, representing a substantial 24.4% increase from Kindred's closing share price of SEK104.50 on January 19. The timing of the acquisition has sparked interest, considering the current market dynamics and Kindred's recent strategic decisions.

Kindred's 2023 preliminary results suggest that the offer might not be strictly a value-driven decision, but it gains attractiveness when considering the 2024 projections. The 2024 outlook takes into account Kindred's strategic decision to exit the North American market, announced in November 2023, alongside 300 redundancies. The acquisition offer, while reflective of Kindred's current market value, is more aligned with the strategic vision and future potential, as projections offer a forward-looking perspective.

One notable aspect of Kindred's operations is its decision to exit the North American market, a move that aligns with broader industry trends. The company's strategic review, initiated earlier in the year, led to a decision to exit North America, focusing on other strategic priorities. This decision likely played a role in shaping FDJ's offer and expectations regarding Kindred's future growth prospects.

During a press conference held on January 22, featuring CEOs Stéphane Pallez of FDJ and Nils Andén of Kindred, the companies shed light on their strategic alignment and the rationale behind the acquisition. The joint vision is to create a "European gambling champion" that boasts a larger scale, an exciting portfolio, and improved technological platforms. This collaborative effort positions the combined entity as a major player in the European gambling landscape.

FDJ's goal to become a "European gambling champion" underscores the broader trend of industry consolidation and expansion. The combined entity aims to leverage the cash flow from FDJ's monopoly operations with the expansive reach of Kindred's multi-product, multi-jurisdictional operations. This synergy is expected to bring about a material change in FDJ's direction, moving from a monopoly-focused operator to a multi-product top-tier European operator.

While FDJ's acquisition of Kindred represents a significant strategic move, it also highlights the scarcity of such transformative acquisitions in the gambling industry. The unique positioning of Kindred as a top player in Western Europe, coupled with its expertise in various segments, makes it an attractive target for FDJ's expansion ambitions.

The success of the acquisition will depend on the seamless integration of operations, realizing synergies, and navigating potential challenges in an evolving regulatory landscape. FDJ's due diligence on Kindred suggests a level of comfort with the future earnings projections, emphasizing the strategic nature of the deal over immediate value considerations.

In conclusion, FDJ's move to acquire Kindred signifies a strategic shift toward becoming a major player in the European gambling market. The acquisition provides FDJ with diversified market access, a robust portfolio, and technological capabilities to thrive in the evolving industry landscape. As industry dynamics continue to evolve, strategic moves like this reflect a broader trend of operators seeking growth, diversification, and a competitive edge in the dynamic world of gambling.

By fLEXI tEAM