ESG and M&A Valuation in Regulated Industries: The Case of Bridgepoint's Acquisition of Cherry AB (Advances in Economics Management and Political Sciences)

Summary

• In late 2018, private equity firm Bridgepoint acquired Nordic online gaming operator Cherry AB in a public-to-private transaction valued at SEK 3.5 billion.p.3
• The transaction implied a TE/EBITDA multiple of 15.05x, exceeding the 2018 global gambling industry M&A baseline mean of 14.68x.p.3
• Bridgepoint paid an absolute valuation premium of +0.37x TE/EBITDA for Cherry AB, representing a relative premium of approximately 2.5% above the market average.p.3
• Cherry AB's acquisition valuation ranked in the top 15% (above the 85th percentile) of 27 global gambling sector M&A transactions completed in 2018.p.3
• The study demonstrates that governance and compliance factors, rather than environmental or social dimensions, were the primary drivers of the valuation premium in heavily regulated sectors.p.1
• Strong compliance performance lowers downside operational risks, reducing the required risk-adjusted discount rate (r) in discounted cash flow valuation models.p.6

Key insights

1. Governance and compliance levels serve as the core drivers increasing pricing in private equity buyouts within highly regulated industries.p.1
2. The benchmark sample of 27 completed global gambling M&A deals in 2018 yielded a mean TE/EBITDA multiple of 14.68x and a median of 8.13x.p.3
3. Only four transactions out of the 27 completed global deals in 2018 recorded higher valuation multiples than Cherry AB's 15.05x TE/EBITDA.p.3
4. Bridgepoint's mandatory ESG screening focuses on three core priorities: regulatory licensing track record, AML risk controls, and responsible gaming practices.p.4
5. Pre-existing maturity in compliance infrastructure avoids post-acquisition integration costs and extra one-off regulatory compliance spending.p.5
6. Unlike public equity markets where ESG influences general market sentiment, private equity buyers evaluate compliance to price asset downside risk directly.p.6
7. Investment in compliance infrastructure operates as a value-creating asset rather than a cost burden for companies in regulated markets.p.7