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RB Capital co-founder Julian Buhagiar has likened the special-purpose acquisition companies (SPACs), responsible for much of the industry’s current M&A, to “weapons of mass destruction”.

Buhagiar was moderating the Why So Much M&A In Gaming? panel at iGaming NEXT Online: Bright Future this morning, alongside panellists Mohit Kansal, partner at Clairvest, and Tsachi Maimon, CEO at Aspire Global.

While Kansal described the current rush of M&A fever in the industry as “euphoric”, the panel agreed that the volume of M&A alongside the eye-watering valuations meant that a “reckoning”, in the words of Buhagiar, was ultimately inevitable.

“Someone’s going to do the reckoning at some stage”, he said. “I think it’s going to be stunted when SPACs lose their bargaining power”, which he said was on the horizon as regulators took a keener interest in curbing their purchasing power.

Buhagiar suggested that some sort of regulatory intervention was likely to be taken by the Biden administration and that restrictions would begin to slow that segment of the M&A market by 2024.

Meanwhile, he said his fear was that SPACs would “deplete what is effectively good capital for the igaming space”, likening the investment vehicles to “weapons of mass destruction for gaming if we are not careful”.

Kansal agreed, saying that SPAC deals had already “started to thin out”. SPACs, also known as blank cheque companies, are established with no commercial operations, with the sole purpose of raising capital through an initial public offering to make acquisitions.

“They’re structurally set up in a very odd way – they have all this capital, the incentive is to do a deal, quicky”, Kansal pointed out. “We’ve sold into SPAC. When you do that, one of the things you worry about is: is there going to be money there at the finish line?”, he said.

He said his preferred vehicle would be private investment in public equity, or PIPEs. In which an investor buys stock directly from a public company below market price.

Because they have less stringent regulatory requirements than public offerings, PIPEs are more time and cost efficient. “These are helpful because you know there will be money there”, Kansal explained.

Asked to highlight the deals that had most caught their eye in recent months, Kansal and Maimon both flagged acquisitions by daily fantasy sports (DFS) giant DraftKings.

For Kansal it was the acquisition of sports betting broadcast company Vegas Sports Information Network (VSiN) in March.

“This was a move to go upstream and own media assets themselves, which frankly opens the floodgates a bit”, he said. “Traditionally they’ve been buying traffic but now they’re buying media assets – who knows what’s next. Could FanDual and DraftKings buy a media network?”

Kansal said the deal made the likelihood of the major DFS players taking a bigger stake in the broadcast and sports rights a lot greater. Buhagiar agreed, but said he also expected moves like this to invite greater regulation in future.

Maimon highlighted DraftKings’ acquisition of Israeli supplier BlueRibbon Software in April. The company creates jackpot and gamification mechanics as an overlay for games.

For Maimon, it was the high valuation of the acquisition that really stood out, alongside the fact that the BlueRibbon has such a niche product.

You can watch the session with Mohit Kansal (Partner, Clairvest), Tsachi Maimon (CEO, Aspire Global) and Julian Buhagiar (Co-Founder, RB Capital) on igamingnext.tv.