Suppliers Serving Grey Markets Risk M&A Shutout, Warn Experts

June 16, 2025
Back
As regulators close in on suppliers that sell into unregulated markets, dealmakers suggest that grey market exposure is also becoming an M&A red flag.It is no secret that compliance pressures on suppliers have ramped up significantly over the past few years, as regulators introduce new rules or use their existing leverage to try and restrict operations in the offshore market.This has largely taken the form of demands that suppliers currently doing business with licensed operators stop selling products to companies that serve the jurisdiction’s black market.
Body

As regulators close in on suppliers that sell into unregulated markets, dealmakers suggest that grey market exposure is also becoming an M&A red flag.

It is no secret that compliance pressures on suppliers have ramped up significantly over the past few years, as regulators introduce new rules or use their existing leverage to try and restrict operations in the offshore market.

This has largely taken the form of demands that suppliers currently doing business with licensed operators stop selling products to companies that serve the jurisdiction’s black market.

Authorities have also been willing to back their words with actions, as seen in several enforcement cases in Sweden and the high-profile ongoing investigation into Evolution by the UK Gambling Commission.

However, there are now signs that this global sharpening of focus on supplier compliance may be hitting suppliers where it really hurts: in their valuations.

M&A experts say that financiers are becoming increasingly skittish about approving deals for companies with serious grey or black market exposure, even on the supplier side.

While the prospect of enforcement action is a motivator for change, the prospect of executives missing out on big acquisition payouts is arguably even more likely to move the needle.

“If you’re looking at being exposed to the US market or [any other market] where the regulators are really looking at where you operate,” said one expert, “even grey market exposure at the moment” is limiting companies’ options.

The M&A professional was speaking on condition of anonymity under Chatham House rules at a recent conference organised by law firm CMS in London.

The panel featured representatives from a large global operator, an investment bank and an M&A advisory firm.

“If you’re a supplier that has a lot of great content in your business, you will be subject to a lot of due diligence,” the expert warned.

They pointed to the increase in regulator action against B2B providers, adding: “I think we’re in the early innings of that and how that evolves could have a material impact on the content space, in particular.”

Investors are also starting to lose faith in the gambling industry concept of “pre-regulated”, the panel suggested.

This skittishness is in part because institutional investors are starting to become more comfortable with gambling investments, largely due to several years of growth in the still youthful US sports betting market.

But with bigger investors comes greater scrutiny and experts are warning that funds have been unwilling to back deals that involve meaningful grey market exposure.

This is evidenced on the operator side of the equation by the controversial US sweepstakes market.

There are several companies in that space who “would love some liquidity”, said one expert, but there is currently “a huge disconnect in the number of buyers” due to the sector's uncertain regulatory footing.

The good news for suppliers is that they are still seen as a considerably lower risk investment than operators with similar grey market activities, they said.

That means that private equity funds that might have recently developed the confidence to dip their toe into the gambling space could opt to test the market with a B2B firm first.

Still, experts warn that when surveying the market for a company to buy, grey and black markets will still be seen as a downside risk.

Pressure on suppliers only looks set to increase, as does public acknowledgment of their respective grey market exposure.

The UK Gambling Commission warned as recently as this month that it is holding off on enforcement action against the B2B sector in the hopes that operators can rein in their commercial partners, but was prepared to pull the trigger if it sees no improvement.

There have also been increased efforts globally from regulators to understand the business activities of suppliers they licence. Rules or licensing procedures in jurisdictions from Romania to Michigan have been updated in recent years to demand disclosure of global business activities.

Regulators are also increasingly sharing information, with European regulators revealing they are routinely sharing data in an effort to restrict the black market, as well as several initiatives across the Atlantic to link up intelligence gathering efforts.

Our premium content is available to users of our services.

To view articles, please Log-in to your account. Alternatively, if you would like to gain access to the tools that will help you navigate compliance risk with confidence please get in touch today.

Opt in to hear about webinars, events, industry and product news

Still can’t find what you’re looking for? Get in touch to speak to a member of our team, and we’ll do our best to answer.
No items found.
No items found.