Consolidation among online gaming firms is set to spark into life in 2010 with a possible deal between PartyGaming and Austria's bwin seen as the potential catalyst for a wave of takeover activity.

“I think 2010 is going to be the determining year,” said one senior executive of an online gaming group who asked not be named. “I do think there's going to be a domino effect, meaning the first deal gets everybody else to run. You don't want to be the last one left without a partner.”

If a merger of Party and bwin were to materialise, it could cajole the likes of 888, Sportingbet and Playtech into tie-ups. Traditional betting firms like Ladbrokes, William Hill and Paddy Power may also look to make acquisitions to boost their online presence. Numis analyst Wyn Ellis says M&A activity across the sector is “inevitable”. “We believe that consolidation talks are widespread across the online gaming sector and that most companies could be considered to be both potential industry consolidators and takeover targets,” he said. Party and bwin have held early stage talks about a combination which would pair Party's strength in online gaming with bwin's expertise in sports betting. Analysts say the logic behind the deal is compelling. “Such a deal would bring Party the critical mass in sportsbook that it lacks, while for bwin, Party's casino and poker products would provide a significant boost to its presence in these markets,” said KBC Peel Hunt analyst Nick Batram. Daniel Stewart analyst James Hollins described the combination as “pretty epic.” “The combination would be very strategically strong. It's a pretty neat fit. PartyGaming is a very good poker brand. To combine that liquidity with bwin's network would be pretty impressive,” he said.

Bwin shares have risen by over 300 percent since the beginning of 2009, boosted by ongoing merger speculation, a more favourable regulatory environment and the wider rally in Austrian shares, giving it a market value of $2.2 billion. That compares with PartyGaming's $1.8 billion valuation, suggesting bwin would be the senior partner in a merger. “The fact that bwin has edged ahead in terms of market cap may mean that the deal could happen earlier rather than later,” said Cheuvreux analyst Alfred Reisenberger.