On June 24, software provider Evolution Gaming made a public offer to acquire Stockholm-based NetEnt at a valuation of SEK 19.6 billion (€1.8 billion). As part of the deal, the live-casino games’ supplier will compensate NetEnt stockholders at roughly 0.1306 per share.
The investors have until October to come to an agreement. NetEnt is allegedly encouraging them to accept the deal, meaning executives are on board with the offer. However, the deal isn’t negotiable and will only complete if Evolution Gaming can acquire over 90% of the shares.
Why does Evolution Gaming want to acquire NetEnt so badly? Let’s get into it.
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An Ambition to Lead the World
NetEnt is one of the top three biggest online software providers in the world. In contrast, Evolution Gaming is the leading supplier of live casino games. A merger would place the Latter at the helm of the software business, elevating it into a league of its own.
Evolution Gaming is genuinely one of the most respected brands in the online casino industry. It specializes in one genre of games, but it is excellent at it. Furthermore, the 2006-founded company is a fast-growing company.
And that means it wants to maintain or increase its dominance. Acquiring a company jam-packed with talent and resources is an excellent way to conquer the industry and establish itself as a leader for many decades to come.
To Eliminate a Tough Competitor
Let’s face it. Evolution Gaming isn’t the only live-casino software provider around anymore. There’s more competition, mainly from Playtech and NetEnt. Playtech is too big with a net income of €133.6 million.
NetEnt is also a huge brand with annual revenue of roughly €170.4 million. But considering it’s much smaller than Playtech and offers significant competition to Evolution Gaming, an acquisition is a smart decision.
It makes even more sense when you consider that NetEnt had plenty of products Evolution Gaming lacks. Even its live-casino games are different from those of the Latvia-based company. As a result, Evolution Gaming is at a strategic position to grow its brand without changing much of what it offers.
Huge Variety of Top-Rated Games
NetEnt isn’t your average developer. First, there are over 200 NetEnt slots and card games distributed in over 100 online casinos. Many of these games are top-rated and in high demand. And as a testament, nearly every new casino wants to acquire a NetEnt license.
Purchasing the software provider is, therefore, not a fruitless effort. Instead, it is an opportunity to own a wide range of beautiful, timeless and in-demand slots and card games. It is a chance to make money from titles such as Gonzo’s Quest, Twin Spin and Starburst.
And depending on how Evolution Gaming manages NetEnt henceforth, it’s a chance to control the biggest software providers in the world.
Support from Board Members
Both Evolution Gaming and NetEnt believe a merger is what’s best for both companies. NetEnt’s investors will have a chance to profit after periods of fluctuating share prices. In contrast, Evolution Gaming will fulfil its dream to become an unstoppable force in the casino sector.
Presently, shareholders are the only people in the way of the merger. At least 45% of the group accepts the offer, so it’s up to the remaining 55% that control 79% of shares to make it happen. Across the board, roughly 35% of Evolution Gaming’s shareholder plan to approve the deal according to the software provider. Employees in both companies wouldn’t be affected by the acquisition, and neither will they benefit in it materially.
Annual Cost Savings
One of the reasons many companies merge is to share resources and hopefully save on costs. According to a study published on Research Gate, cost savings begin immediately an acquisition happen and increase for a year before declining.
Nevertheless, a merger is a perfect way to unify production and eliminate costs that overburden either company. In NetEnt’s case, an acquisition might lead to more profits. Its shares have been on a decline since last year.
By joining up with Evolution Gaming, it could lower its costs of game production and thus magnify its profits. As studies show, however, these improvements aren’t always long-lasting.
Commanding the US Market
Something magical is happening in the US. Every month since May 2018, there’s a state proposing or actively considering to legalize online gambling. These jurisdictions are allowing up to 30 operators, casinos that need software providers.
NetEnt has a foothold in the few US states with legal online gambling policies. Evolution Gaming also supplies games to a few casinos in New Jersey. And once it acquires NetEnt, it hopes to dominate the North American Market one step at a time.
There’s a lot of money to be made in the US, of course. If a merger strengthens both NetEnt and Evolution Gaming, the two companies could grow bigger than Playtech, Scientific Games and all other alternatives.
More Resources to Invest in Research
This might come as a surprise, but software providers invest millions of dollars in research and development annually. A significant percentage of this money never comes to fruition. That means there are tons of slots or in-games features we might never see because they weren’t completed.
A merger will help increase NetEnt’s financial muscles. And if used correctly, this money can lead to games as innovative as Starburst and Gonzo’s Quest. It could also lead to games that support VR efficiently or more features than only exist as concepts presently.
Diversification
Playtech is so prominent today because it expanded beyond slots. After launching in 1999, the company started to acquire smaller companies immediately. Then it dabbled with card games, sports betting, banking and financing.
All these acquisitions contribute to the company’s estimated valuation of €5 billion. Evolution Gaming dreams of a similar future. But presently, acquiring NetEnt will take it a step closer towards diversification.
It will no longer be recognized for its live casino games alone. Instead, it will also grow its brand as a slot developer. In turn, the diversification could bolster its net income and cushion losses in case one sector hurts financially.
About Carson Derrow
