Netent agrees to purchase Red Tiger in all-cash transaction
Netent buys Red Tiger Gaming for £200 million up front and £23 million in deferred payments to 2022 in an all-cash deal.
With dozens of developers already supplying games to online casinos, it seems that new competitors are sprouting up all the time. As of yet, the flood gates to consolidation have not taken firm hold in the software gambling industry but the announcement that Netent buys Red Tiger may be the start of a trend. This is because Red Tiger Gaming has agreed to an all-cash deal where they will receive £200 million with a further £23 million subject to meeting performance targets in 2022.
The acquisition is expected to be accretive to Netent’s 2020 earnings per share (EPS) and allows them to benefit from scalable technology which will support future growth.
Netent buys Red Tiger
The developer Netent stands tall as one of the giants in online gambling software through the release of several classic titles which have remained resilient despite their age. One of these titles is Gonzo’s Quest, released in 2011, which is based on an odd Spanish explorer in search of the lost Aztec gold of Eldorado. Another classic Netent slot is Starburst based on a cosmic jewel theme that was released back in 2012. Since then there have been many more game releases.
The rational for the acquisition of fast-growing Red Tiger Gaming makes sense for Netent. Started in 2014, the target company has become recognised for their daily jackpot games. The acquisition of Red Tiger Gaming allows Netent to benefit from the targets scalable technology which will support future growth. Netent is expecting to take a Q3 2019 charge relating to the acquisition. The deal will be financed mainly from debt facilities sourced from Nordea Bank and Dansk Bank.
Netent’s shares are traded on the NASDAQ Stockholm exchange and the NGM Nordic. In 2018, the company’s sales grew by a slower 8.9% compared to 12.4% in 2017 and 28.5% in 2016. Netent’s revenue growth has seen consistent declines since 2014 when it stood at 35.0%. Still, they have managed to grow their operating profit (EBIT), profit after tax (PAT), earnings per share (EPS), return on equity (ROE) and cash position in each fiscal year since 2014.
The deal will be mutually beneficial as it will increase the distribution network of Red Tiger Gaming and reverse the negative trend in revenue growth at Netent.
Red Tiger Gaming
Red Tiger Gaming is a developer established in 2014 by the same members that created Cayetano Gaming. For the full year 2019, projected earnings before interest, taxes, depreciation and amortisation (EBITDA) was £18 million. Based on a total purchase price of £223 million, Netent paid just over 12x Red Tiger’s EBITDA.
In the past, the developer has been looking to expand their player reach through a number of collaborations with other developers. This year alone, they signed agreements to integrate their games on the platforms of Iforium’s Gameflex, SkillOnNet, EveryMatrix Group and SBTech.
The deal with Netent will enhance their distribution network and geographic footprint as well as create opportunities for Red Tiger to increase their rate of growth.
At the same time that Red Tiger Gaming has been signing partnership agreements to widen their distribution, they have also continued their expansion into regulated markets with licences in Gibraltar, Malta and Alderney.