As industry consolidation continues on an exponential scale, supplier acquisitions like Scientific Games’ takeover of Lightning Box Games and Evolution’s buyout of Big Time Gaming are becoming evermore common. So much so, in fact, it almost feels too obvious to point out... But a newer trend has developed in recent years which is somewhat bucking the wider consensus. Indeed, in the modern M&A climate, more and more operators are buying more and more suppliers – a concept that feels completely contrarian upon first thought.
Earlier this year, a prime example materialized as established operator Kindred Group purchased online gaming supplier Relax Gaming. Relax will continue supplying B2B slots and the like to competing operators, in some cases direct Kindred rivals. All the while, Kindred will keep operating in the same vein as it was before – with no change in approach off the back of this merger. They seem like conflicting approaches, and yet they will proceed side by side as part of one overarching strategy.
A few months into the partnership, Gambling Insider is proud to have landed Kindred CEO Henrik Tjärnström to speak exclusively about the acquisition, its connotations and what this growing operator/supplier trend means for the wider industry. In the Q&A below, Tjärnström offers his thoughts on the deal’s benefits, structure, alternatives and overall meaning for Malta. Call this integrated independence, if you will.
Hi Henrik, thanks for taking the time to speak with us again. What are the biggest benefits of Kindred acquiring a supplier like Relax?
As we highlighted on 2 July, when we announced the transaction, it will accelerate our strategy towards our increased focus on product and customer experience; and basically strengthen our product control and differentiation through proprietary content. That was one of the main themes. But we have also been a long-term owner of Relax since 2013, and we owned a third of the company previously; this now enables us to add a rapidly growing and profitable B2B business with a world-class product offering – combining a B2B supplier with a B2C operator is creating a really strong group for us at Kindred.
In terms of the structure of the deal, how will the two sides operate? Is it pretty much both sides carrying on as before, or are there going to be any meaningful differences?
So Relax is a market-leading scarce asset in the B2B space. It’s a full-service supplier that offers for us both bingo and poker on a proprietary basis; additionally, it has both world-class aggregation and its own games delivery casino company. So in that sense, they are a top supplier and accumulating more and more operators to their portfolio. It started 10 years ago when Relax was formed; it was basically a spinoff of the technology arm of iGame, and by doing that it’s a tech company at its core. It focused initially on just being that layer in between the game studios and the operators, and accumulating integrations. Over time, they got to a critical mass on both integrations with studios and with operators; then they also decided to create their own games on top of that. So that, combined with the poker and bingo they’ve offered us, has enabled them to be a strong B2B supplier. For us then we, as a B2C operator, of course want to have a unique offering and content; and Relax has been a core vehicle for us to do that already. We’ve also done some more direct integration to our platform. This will enable us to have a B2C arm and a B2B arm, and they can be completely separate from an operational point of view; to secure the integrity of the B2B customers while at the same time providing us, our B2C arm, with unique content. So it’s really one plus one equals three in this sense.
I was going to ask if Relax will keep providing B2B games for other operators and you’ve answered that already. But will it be making any new specific games for Kindred on an exclusive basis? And, like you’ve said, the B2B and B2C arms will be separate, but isn’t it a little weird to have an operator buying a supplier that’s still working with rivals?
Yes, but it’s become more of the norm in the industry of today that B2C operators also have an arm that is more B2B, and to get scale on those investments as you’ve seen elsewhere, when you look at the supplier side of our sector. With the integrations towards the operators, by having that critical mass and then when Relax started to do their own development and launching that into that network, there’s very good scalability in that model. It flows through pretty much down to the bottom line, and as you can see the operating margins are phenomenal in the supply chain. So it is really a norm of today that operators want to have bespoke, unique content; and also get the benefit of having what we will now have: the highly profitable B2B arm of Relax. This will provide a strong financial cash flow coming in, and it enables us to then reinvest in the B2B side, to continue to grow and create even better profitability for Relax.
In the past, operators have already bought suppliers; you have DraftKings and SBTech, you have this deal and there have been a couple of others. Do you see this trend continuing? Will we get to a stage where every major operator will have bought a major supplier?
Margins in our sector are quite under pressure from the re-regulation trends and betting duties. The transformation we’re undergoing is to have as high profitability as possible: these supplier companies offer that as long as, of course, they can provide good-quality games and provide that to other operators on a larger scale – which Relax can do. So, from a financial point of view, it makes sense and also, from a strategic point of view as I mentioned, we would get exclusive content; then operationally, we would keep them separate so we get the benefit from the Relax positives and we don’t have to invest in Kindred developing our own bespoke studios, starting from scratch. By basically increasing our holding from a third to take control of the company, we get that double benefit.
