Industry reaction: Evolution Gaming scores online casino knockout blow with NetEnt deal

In any heavyweight boxing fight, there will always be those fighters with unique attributes that push them to the top of the rankings. These are analogies which can easily be transposed to the online gambling world, in the form of unique selling points which can attract players or a key focus area that brings the firm success beyond that of its rivals.

Evolution Gaming and NetEnt are two such firms. With its focus on live casino, Evolution has carved out a market-leading position, while inversely NetEnt has used its own focus on online slots to climb to the very top of the online supplier tree in this vertical.

Evolution Gaming, which has tabled a SEK19.6bn (£1.6bn) takeover deal for NetEnt, hailed the “milestone” offer as accelerating the firm’s drive to become a world leader in online slots and casino gaming. The supplier also cited NetEnt’s strong online slots presence combined with Evolution’s existing live casino studio as lifting its US ambitions.

The merger between the two businesses is expected to generate annual cost savings of €30m compared to NetEnt’s and Evolution Gaming’s combined cost base in Q1 2020.

Below, RB Capital’s Julian Buhagiar, Nordic Gambling consultant Morten Ronde and Redeye analyst Jonas Amnesten share their views on the latest bout of industry M&A.

Nordic Gambling consultant Morten Ronde

It’s a massive consolidation of two suppliers which are respective leaders within their fields (online slots and live casino). Combined, I am sure it will be a real powerhouse in the industry.

It is possible that, because of the new company’s size and origin (both outfits are Swedish), that the new merged company will have a (stronger) voice in the Swedish ongoing debate about gambling regulation.

RB Capital co-founder Julian Buhagiar

Evolution’s proposed offer of takeover of NetEnt comes as a surprise but not wholly unexpected. NetEnt has a strong US track record and also – alongside their most recent Red Tiger acquisition – some of the best performing slot products in the industry.

This is of strategic importance for two key reasons. The first is that there is sufficient complementary revenue across both businesses, meaning there is a compelling cross-sell opportunity. The second, and perhaps more profound impact, is that there is now a significantly stronger leverage position against new and existing operators, which in turn places demand on operators to source more disruptive game content to diversify their brand.

What’s most surprising is the actual valuation, which comes at a 43% premium over the most recent closing share price. This is one of the strongest indicators of a ’bear hug’; in investor terms making an offer at a much higher share price than current valuation, with the objective of minimising any shareholder objections and rapidly move to consolidate the deal.

What this significant acquisition means for the US market – and existing operators worldwide – will fully be realised over the coming years as Evolution looks to make good on its promise to save €30m in annual costs. It also could mean a shift away from live casino to focus on consolidating slots, which could prove challenging at a time of (arguably excessive) market regulation on highly profitable slot games.

Redeye analyst Jonas Amnesten

In short, this is a game-changer for the online casino industry. Evolution Gaming is truly reaching world domination within content for the online casino sector. I also believe that this will trigger further consolidation for the operators as the bargain power has shifted even more in Evolution’s favour. It is likely that Evolution will use its domination to increase its commissions. The operators need to scale further to maintain profit margins.