Four questions from NetEnt’s Red Tiger acquisition
How integrated will the two online casino developers be, and did NetEnt buy high?
NetEnt last week surprised the industry with the acquisition of rival slots supplier Red Tiger in a deal that could ultimately be worth £223m.
EGR spoke to Therese Hillman and Gavin Hamilton, the CEOs of the two companies respectively, to find out the reasons behind the deal and how the combined company will be run going forward.
What was the driving factor behind the deal?
NetEnt CEO Therese Hillman said the main rationale for the transaction was to boost Red Tiger’s growth, specifically into new regulated markets.
“We don’t want to interfere with anything that they’re doing,” Hillman said. “They’re on a journey and we would like to boost that journey with our compliance, regulated market, and legal expertise, as well as the distribution we have and everything that we have invested in.”
Red Tiger CEO Gavin Hamilton added: “The number of markets we are in is nothing compared to NetEnt and the learning curve for us to get there would be huge. This just accelerates our knowledge as to how we enter these markets massively.”
How much integration between the two companies will there be?
The two companies will continue to be run separately from a commercial perspective, with the main synergies and crossover coming in product.
When asked about specific product plans, Hillman said it was too early to say. “We haven’t had those meetings yet,” she said. “But you can imagine what we could do with a combined product.”
She added: “We see a combined portfolio of gaming content and services, we see that we can share talent, we can share experiences, we have strong IP in both companies, and our combined innovation will be very, very strong.”
Did NetEnt buy high?
A look at NetEnt’s share price shows a steady downward trend in recent years, and the company’s latest earning reports have also shown stagnant growth. So did the company overpay, just to be seen to do something?
“It feels like a bit of a desperation move from NetEnt,” said one analyst speaking off the record. “I guess they had to do something, but it’s just adding the current ‘hot’ supplier and hoping that does it.
“Slots companies are like flat horses – nobody really cares once they’re more than five years old.”
When asked about the need to do a deal, Hillman told EGR: “We have stagnated growth wise and we realised that we needed a wider offering, more of a UK market presence, as well as more innovation. So the rationale was right there in front of us.”
What about Asia?
Red Tiger has historically been strong in Asia, but Hillman downplayed those revenues in the investor call following the deal, saying Red Tiger was now focused on growth in northern Europe.
“The company has made a choice to focus on Europe instead of Asia, where the demands for games are different,” Hillman said.
“So we see revenue share from Asia is decreasing a lot. Europe is primarily the growth.”
When asked whether it was a good idea to be deprioritising Asia at a time when more companies were looking there for growth, Hillman told EGR: “We evaluate every single market and there are interesting countries within Asia where we will continue of course, but product-wise, the product is different. The demand there is for a simpler product with fewer features. It’s all about optimising the product and if there is growth in Europe that’s going to be prioritised.”