Nolimit City’s EUR340m purchase by Evolution appears to be in line with the company’s strategy of launching less games, but ones that are more distinct. Is this sufficient for Evolution to establish a slot market dominance as strong as its live casino one?
Evolution made it very clear from the time it bought NetEnt, in 2020, that they wanted to become a one-stop shop for operators of online casinos.
It is clear that the acquisition of Nolimit City, a slot game developer, was a good move.
Recent results show that Evolution’s Random Number Generator (RNG), a division of the company, has not generated much organic growth.
Georg Attling is an equity analyst with Pareto Securities. He says that the change was mainly due to a new strategy. In order to deliver a better standard of content, the supplier opted for fewer game launches.
Attling says, “It’s true that Evolution’s RNG Segment hasn’t met our growth expectations so far.” This is due to the reworked launch pipeline for games.
Evolution scrapped its existing launch pipeline for games after the acquisition of NetEnt and Red Tiger, as it did not meet Evolution’s standard.
Attling says that this has led to fewer launches and growth is “challenging”. However, Attling believes it will change soon.
He adds: “We expect an increase in game launches as we enter H2, which will allow us to return to double digit growth for the entire segment.” The analysis that the RNG Division has not met expectations is correct in terms of the growth. However, it was a deliberate decision.
Kevin Dale, of Egamingmonitor, argues as a result that Nolimit City is in line with the NetEnt strategy Evolution has already adopted.
He says that the content produced by Nolimit City is unique, both in production and image. The games with dark themes, like Mental, Deadwood San Quentin Misery Mining Fire In the Hole, Tombstone, are the most popular.
They’re a great match in terms of their production values, as they focus more on innovation and quality than output.
Evolution’s chief executive Martin Carlesund said on an analyst conference call after this morning’s announcement that the distinctiveness was a key part of the agreement.
He said that unlike other providers, gamblers are more likely to recognize the studio from which the game is created when playing Nolimit City games. Carlesund claimed that its content is appealing to “advanced slot players”.
He explained that it was a niche-specific content. It’s a very rich graphic, and has a lot of interesting mechanics. This is more appealing to the experienced player but everyone who plays Nolimit Slots will be attracted. It’s obvious that they are playing Nolimit slots.
The games fill a void that was not there before.
Attling claims that this deal is a commitment by Evolution to its slot strategy.
He says that it reaffirms Evolution’s commitment to space. I argue that this is more of a double-down because it’s a doubling down on the existing strategy than an attempt to shake-up a slowly-growing division.
Dale says that Evolution’s experience in integrating slot developers should make the integration process easier.
He says that Evolution’s product line is very similar to NetEnt and Red Tiger.
He warns, however, that due to the difference in size between the acquired business and the acquirer’s acquisitions the deal will not give Evolution access many more operators.
Nolimit City will add less than 1% of the content Evolution has (among more than 2,00 operators), bringing them up to 13% of global market share.
Nolimit’s content is widely used by around 10 percent of casino websites. This deal would only give them access to around 20 additional operator sites, despite the vast reach of Evolution.
Evolution revealed Nolimit City’s financials in a few brief snapshots. The business was very efficient at converting revenue into profit. Developer expects EUR30m revenue by 2022. However, earnings are expected to only be EUR23m before depreciation, interest and tax.
These margins look a lot like those at Big Time Gaming. The creator of Megaways, the well-known mechanic acquired by Evolution in 2017.
Attling says that while margins can be an asset, it is not likely to reflect a strategy of searching for businesses with the lowest costs.
He says that “Evolution stated it prioritizes growth over margins and yet, it achieved industry-leading profit margins.” “I believe the same logic applies to acquisitions.” High margins are a nice to have but not essential in the near term. If Evolution is confident that it can expand the business at a mature stage, acquiring a lower-margin company would be ok.
Carlesund gave his own insight into the M&A strategies of Evolution. Carlesund said slots were a natural vertical that Evolution would continue to acquire. However, the company wouldn’t exclude moves into its core vertical of live casinos if they presented an opportunity for it to add new products to their portfolio.
I don’t think there is much potential for buying an actual company, but you never know. He said, “Perhaps it will happen.” But there are pieces of technology, like Digiwheel, where all we need is a piece of software or hardware to improve our games.
Slots have helped us to see where we are going. Our goal is to become a full-service provider, but we also want to provide the highest quality content to our customers.
We still need some parts, but we think we have them now.