A recent study conducted by Hand, an independent financial advisory firm specializing in M&A and business management, highlighted that the Brazilian market is in the spotlight due to its growth and the expectation of becoming one of the largest sports betting markets in the world (in terms of Gross Gaming Revenue - GGR, according to a report published by XP).
With the advancement of regulation and the publication of complementary ordinances that provide the necessary legal security to attract investments, Brazil has become the focus of expansion for investors worldwide. However, the lack of professional and structured management among national players, along with the complexity of operating in the country, has led investors to adopt a cautious stance before investing in Brazil.
Currently, there are more than 1,000 betting companies (known as "bets" in Brazil) operating in the country. In 2023, they handled over R$ 50 billion (US$ 8.8bn), surpassing the value of beef exports and the economy of states like Sergipe and Tocantins, and accounted for 25% of the 14.2 billion accesses to betting sites worldwide.
However, few operators have a robust organizational and financial structure that justifies receiving investment or being sold to investors.
According to Vitor Medeiros, responsible for iGaming sector coverage at Hand, "with the definition of the betting market regulation in Brazil, a natural adjustment movement among operators is expected, similar to the 'Brazilian Championship.' After the regulation, we will see a scenario where five operators will compete for the lead, eleven will work to enter the top 5, and four will fight not to fall. Of course, there will be other operators, but they will operate in lower divisions or the illegal market."
Vitor also mentions, "a consolidation movement is expected, which may become an opportunity for some robust operations and the closure of others due to the strict regulations that will come into effect, putting strong pressure on operating margins."
Among the new requirements, the following stand out:
These requirements are already causing various strategic movements by major players in the sector, and the trend is expected to intensify in the coming months. Some of the movements under discussion include:
Additionally, smaller operators are becoming affiliates of large operators, establishing strategic partnerships where the smaller ones act similarly to a "Master Affiliate" for the larger ones, relieving shareholders of daily operational concerns such as regulatory compliance, licensing costs, and administrative structure, allowing exclusive focus on marketing activities and prospecting.
These movements indicate a period of significant transformations and opportunities in the Brazilian betting market, attracting the attention of national and international investors. Brazil has been a protagonist in developing solutions for the "bet" market, and the need to "tropicalize" international solutions for a continental country like Brazil has increased investors' interest in acquiring local operations with expertise in the Brazilian market.
The entire ecosystem of operators, providers, payment methods, affiliate companies, and KYC solutions will be targets for consolidation. The higher the level of sophistication of the solutions, professional management, quality of information, clear growth strategy, and good relationship with the market, the more attractive the asset will be to investors.
The need to have a Brazilian with 20% of the operating companies' share capital is one of the attractions for M&A processes, further boosting the more professionalized companies.
Hand is already advising some companies seeking investors but warns: "Since it is a very informal market in Brazil, few companies are at the stage of being sold or invested. We observe several management and transparency gaps in other market players, but the appetite of investors is high.”
Medeiros also highlights: "In recent months, we have talked to over 90 national and international investors interested in investing in Brazil. Our agenda for this year is quite intense. We will be at international events such as SIGMA and SBC, as well as participating in national events to expand relationships and discuss investments in the current client portfolio."
"The iGaming market, unlike traditional sectors, is highly relational, and investors prefer face-to-face negotiations. This direct and personal approach is essential to ensure the transparency and trust needed in an extremely dynamic sector. Participation in global events not only expands networking but also reinforces the commitment to best governance practices in these companies."
As feedback from conversations with investors worldwide, Hand reinforces: "International investors are very interested in acquiring operations in Brazil, especially with the need for 20% of the share capital to come from a Brazilian partner.” However, they seek companies:
* With professional and transparent management of financial results
* With data-driven decision-making, avoiding fraud, and strong control over their player base
* With a well-defined strategic plan for the coming years
* With good relationships with all stakeholders in the sector through all communication channels.
The preparation process for companies aiming for a sale (total or partial) or capturing an investor is crucial for the operations to happen, allowing shareholders to save time, capture more value in a transaction, and keep their focus on the operation.
This analysis points to a promising and challenging future for the online betting and casino market in Brazil, with great potential to attract investments and establish itself as one of the largest global markets in the sector.
Source: GMB
