Evolution Gaming pounces for NetEnt in £1.6bn takeover deal

Evolution Gaming has tabled a SEK19.6bn (£1.6bn) takeover deal for slots and online casino developer NetEnt.

The offer was made at a price of SEK79.93 (£6.80) 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 digitalisation of the global gaming industry,” Evolution Gaming said.

The supplier also cited NetEnt’s strong online slots presence combined with Evolution’s existing live casino studio as lifting its US ambitions.

NetEnt’s fortunes had been on the decline over recent years, but a £223m deal to acquire slots developer Red Tiger in September 2019 had begun to bear fruit, contributing to a 24% rise in Q1 2020 revenue.

Rumours of a deal between the two online casino heavyweights had surfaced at ICE earlier this year, but both suppliers remained tight-lipped about the potential of any deal.

Evolution Gaming chairman Jens von Bahr said the strategic acquisition was an important part of the firm’s long-term vision.

“The combination of NetEnt’s established position in North America and Evolution’s existing studios in the US and our so-called first-to-regulated market strategy set us in an advantageous position to capitalise on the ongoing regulation in North America,” von Bahr added.

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

In its offer document, Evolution underlined 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, Evolution has said that it 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 highlighted 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.

“This transaction begins a new chapter in the development of more entertaining online casinos for the benefit of players, operators, staff and shareholders,” Hedlund added.

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 in a note.

“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.

“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 krona.

“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 (£46) on the back of the news.