Evolution Gaming pounces for NetEnt in $2.1bn takeover deal
Takeover to accelerate the merged group's growth in the US, which is likely to become Evolution's biggest market
Swedish live casino supplier Evolution Gaming has tabled a SEK19.6bn ($2.1bn) takeover bid for slots and online casino developer NetEnt.
The offer was made at a price of SEK79.93 ($8.57) per share, with Evolution Gaming owning shares in excess of 90% of the NetEnt business upon completion.
The offer acceptance period begins on 17 August and ends in October, however NetEnt shareholders have already confirmed this morning that they will accept the offer. Completion of the deal is expected to take place on 2 November.
Evolution Gaming hailed the “milestone” offer as accelerating the firm’s drive to become a world leader in online slots and casino gaming.
“The merger of Evolution’s leading position in live casino and NetEnt’s strong position within online slots will create a first-class B2B supplier with the opportunity to drive digitalization of the global gaming industry,” Evolution Gaming said.
The supplier also highlighted NetEnt’s strong online slots presence combined with Evolution’s existing live casino studio as lifting its US ambitions.
“The US market has the potential to become Evolution’s largest market as it progresses into individual states,” Evolution said in its offer document.
“Evolution’s current studio in New Jersey and the planned studios in Pennsylvania and Michigan, as well NetEnt’s strong online slots presence, will accelerate the merged company’s entry into the US online gaming market,” it said.
NetEnt’s fortunes had been on the decline over recent years, but a $279m deal to acquire slots developer Red Tiger in September 2019 had begun to bear fruit, contributing to a 24% rise in Q1 2020 revenue.
The merger between the two suppliers is expected to generate annual cost savings of $33.9m compared to NetEnt’s and Evolution Gaming’s combined cost base in Q1 2020.
Evolution cited the worth of NetEnt’s management team, claiming that it did not foresee any “essential changes” due to the merger of the companies for the firm’s combined workforce.
However, the supplier aims to conduct a thorough review of the combined business “in order to evaluate how Evolution can organise and develop the Group in the best way”.
At present, Evolution has 8,000 employees spread across Europe and the US, compared to 1,100 NetEnt employees throughout Europe.
NetEnt chairman Mathias Hedlund welcomed the deal and underscored the unique opportunities of combining the two businesses.
“With Evolution’s position in live casino and NetEnt’s position in online slots, the company will be well positioned to take significant market shares,” said Hedlund.
However, Regulus Partners has questioned whether Evolution Gaming’s “laser focus” on live casino gaming may be hindered by its diversification into online slots with the NetEnt deal.
“Evolution’s NetEnt deal certainly dilutes this focus, albeit using big valuations to beef up scale is something that the market is likely to like,” Regulus analyst Paul Leyland said.
“However, we do not believe that Evolution solves NetEnt’s core problems (other than weak live development), nor is NetEnt high enough quality to be equally accretive to Evolution (partly reflected in the valuation discount).
“In a quest for growth and scale, dilution of focus is probably a risk worth taking – the big risk is that NetEnt becomes not just a dilution but a weakness,” Leyland added.
Meanwhile, Nordea Markets’ Christian Hellman said the deal “makes a lot of sense”. “They are both dominant forces within their respective niches and NetEnt, together with Red Tiger, are really a big force in slots. Plus, both companies are Swedish and share the same organisational culture.
He continued: “Evolution has been trying to buy something within slots for a while. They have to diversify. They are making huge profits and have a cash position of a couple of billion Swedish kronas.
“They can’t really do anything more in live casino – the next obvious step is slots.”
Evolution Gaming’s share price tumbled 10% this morning to SEK550 ($58) on the back of the news.