It's good to speak with you again, John. On our main theme of 'coming to America,' can you talk us through the history of Interblock’s transition from a European company to a more global company with a US hub?
In essence, the company is close to 30-years-old. The first ever electronic table game (ETG) was created by the founder of Interblock, Joc Pececnik, in Slovenia. From this, a small company comprised of a group of high school friends that went to university started to grow. In fact, Interblock remained a sales business of mechanical roulette wheels for close to two decades.
Personally, the first time I had the opportunity to look at Interblock was as an executive at Bally’s, because we considered acquiring it back then. So, I was in discussions with Joc when I got to look under the hood of the organisation and do some due diligence. Lo and behond, the subsequent sale of Bally’s was not something we anticipated, it was quite rapid, when Bally’s was sold to Ron Perelman. In valuating Interblock, I thought it had the potential to go global, so I decided to go to and work with them. I joined Joc in 2015 and we decided to push ahead to see if we could take the concept of ETGs to a new level.
One of the first things I did was evaluate the company from a diversification standpoint and, subsequently, discovered Interblock wasn’t very diversified in any sense of the definition. It had limited customers, limited markets and it was a sales business – very cyclical and tied to broader economic factors. From then on, we quickly worked hard to diversify the company, and now we are licensed in over 320 markets around the world; while our product portfolio has extended to over 30 products vs the one the company had in its first quarter century. Taking into consideration features and functionality, there are probably close to 200 different variations of our products out there today.
Looking at the sales business vs recurring revenue, we built a recurring revenue stream, which is considerably larger than it was five years ago. Thus giving us the cash flow and ability to operate and innovate; in other words, doing all the things that Interblock is known for doing – just more of it. Two months ago, the original two Founders sold 100% of their shares, as Interblock was acquired by funds managed by Oaktree Capital Management. I stayed on as the company became a new entity and I’m very excited about having private equity inside the organisation now, which feeds into the transition of Interblock becoming a global company.
Has Interblock ever considered IPO-ing (Initial Public Offering) or using a SPAC (Special Purpose Acquisition Company)?
I have a lot of friends in SPACs so I don’t want to talk about that specifically! But Interblock did not consider SPACs; honestly, I was always of the mindset that the next step for us was going to be private equity. Going public these days vs 10 or 15 years ago is far harder – the industry, costs involved and the expectations associated with it are massive. There are a lot of positives, but until your company is of a certain size and scale, it’s definitely better to stay private in my opinion.
For now, we are private equity, with the flexibility and ability to remain focused day-to-day on growing the business, and having the tools necessary to react quickly. Sometimes on Wall Street, the rules can be quite prohibitive, which wouldn’t live with our strategy. So I couldn’t be more pleased with having private equity as our owner in the form of Oaktree. Oaktree’s reputation is stellar, and its culture and way of doing business are very much aligned with the way we do things. Let’s see what the future brings.
Thinking out loud, Interblock is possibly the biggest supplier operating privately. At the same time, on the operator side you have bet365 – a huge global firm with no signs of going public, and no signs of this troubling it either – the operator reports great numbers every year.
There’s nothing wrong with being public. Being public is an amazing opportunity and, at some point, perhaps we will also consider going public. Again, with the size of Interblock and the trajectory we’re on, having private equity and the ability to do M&A is a big boost. When you have private equity, you can acquire things even larger than yourself. The leverage of your company means you’re able to provide equity in cash vs straight borrowing, and it leaves the entire gamut of choices at our disposal to do what we feel is best for the future of Interblock.
As of today, I believe the vision of the company is to improve our marketing, so when people think of table games of any type, they think of Interblock. No matter which segment of gaming you think about across the world, both horizontally and vertically, we are working very hard to build a foundation and platform that can quickly expand. This is our current path, where we see ourselves, and I personally very much like being associated with table games – it’s a growth area of gaming that’s sustainable. The new generation of gamblers are very attuned to table games. So provided we continue to innovate, using technology to keep the segment competitive, I would say we are just getting started.
What were some of the biggest challenges for you as a European supplier entering the US market? And hypothetically for the wider supplier market, what are the biggest hurdles they'll face in the US?
Looking at North America, Covid-19 was a complete shock for everybody. For us, the pandemic vastly accelerated a business plan we put in place. Rather than our business model taking five years it took two, maybe even a little less – so that was quite interesting, and a good insight to know what was going on with electronic table games during Covid. As a result of this shortened time frame, it meant we had to put an enormous amount of focus on North America. Luckily, we had laid a lot of groundwork between 2015-2020, meaning we had good infrastructure in the North American market already. So when Covid hit, we weren’t starting from ground zero. Having a pre-existing foundation created an opportunity to capitalise on the momentum we saw from both a player and operator perspective, in terms of increased interest during the pandemic.
Again, we were quite fortunate that the portfolio of products we had created from 2015 to 2019 had grown and diversified to such a point that it was really conducive to an environment such as the one Covid presented. The fact that we had stadiums and single-seat products vs everything being very close together, where we could separate our offerings very easily, fit perfectly into what the public and casinos were looking for.
What’s even more fascinating is that post-Covid, you would think there would be some type of a pullback or a recession of demand to the gaming environment people were looking for, but this hasn’t changed. If anything, it’s continuing to grow. It’s almost as though a whole new segment of players tried ETGs and were encouraged to stay with the product. That's a fascinating prospect many might not have predicted. It's new ground that we’re all treading here. To your point about North America and how quickly Interblock has evolved here, I don’t want to take away from the team, their hard work and dedication, but it’s the primary product that people like. I think the growth we had before Covid was still staggering. But when Covid hit, that trajectory skyrocketed, growth was consolidated from five years into two. This is why people who’re entering America are saying they are seeing Interblock everywhere compared to a couple of years ago. The gaming industry is evolving, and more cost pressures are being placed on casinos to be more labour efficient. Covid created the need for efficiency, and post-Covid I don’t think casinos want to give that up – if anything, I think casinos want to maintain the efficiencies they were able to implement during that period.
Right now, it looks like the world is headed towards some type of automation, a type of automation that consumers are more comfortable with. In many cases, the consumer demands things more immediately – we're trying to fit in with a wider trajectory towards automation.
Have you seen greater competition as more and more suppliers migrate? Do you think pandemic-led growth has led non-US companies to accelerate their plans to move stateside?
We are seeing a tremendous influx of new forms of gaming, both in online, sports and traditional verticals. Loads of suppliers are coming to the states and Canada now; and for all intents and purposes, North America remained open over the past couple of years. In many other markets, if you were trying to build or expand your business, whether that be in Europe, Asia or Latin America – it was incredibly volatile, which made it very difficult to establish a business plan there. Although North America has had volatility and challenges, it was definitely one of the more stable places in the world to evolve over the past 30 months.
Because of this, people that were looking to grow, those that had competitive new products, entered the US because it was a place to drive short-term gains. On the other hand, I think people at these companies underestimated the complexity of entering this particular region, from a regulatory and competitive landscape. Every part of the world is very different, they all have different thresholds – but the Covid situation has definitely brought a slew of companies here.
Interblock has definitely seen more competition as a result of this, which I think is very good. My philosophy on competition is that with more competition comes more momentum in a particular sector. With that being said, many companies contact other companies asking about potential partnerships and mergers. The effort it takes to build up a company in North American markets is not something you can do overnight, you need to be really integrated in the US and have the capital to see through what you want to get done; as well as time to establish all that. A lot of companies run out of capital and, quite frankly, the energy to pursue a return on their efforts.
Conversely, Interblock is almost 30 years old, already had an international infrastructure, with cash flow and private equity to sustain us. This allowed us to focus on North America over the past couple of years to get where we are today. So we’re very fortunate to have that backing, unlike other companies.
Hypothetically, you couldn’t do the job you’re doing now in the US if you were based in say, London, could you?
Well, anything is possible nowadays. But without question it would take you longer. Being local and present no matter where you’re doing business is critical, and essential to navigating your business toward growth. Whatever company is looking to come to the US, forming a subsidiary or an office with a management team in place is going to increase your chances of success 10-fold. This doesn’t mean it isn’t possible to manage from abroad, it will just take longer and posesses a higher risk of failure.
Looking forward, what trends can you see occurring to determine how markets unfold in the US?
Well, who knows? But one thing I can say for sure is the US market definitely won’t be the same. Where we’re going is something I’ll equate to the 1980s and '90s. Back then, the lottery segment was so dominant, and we saw supplier-side consolidation between casino and lottery suppliers. I see that as a very similar case study to casinos in the traditional and online sense. I think we’re going to have a consolidation over the next five years of the online world and traditional casino space.
As a B2B supplier, Interblock is working hard and innovating very diligently to make sure our product offering is conducive to the traditional and online space merging. Sooner or later, players will ask for the seamless ability of two wagering options in one space – online or land-based. If a company can start to integrate online and offline services into one, and it is seamless for a player no matter where they are, this is great for business. It’s also crucial to make your services as user-friendly as possible and provide content in a very seamless fashion that is competitive. I think we’re going to see some very, very large gaming companies fall out of the US market. This market fallout is going to be much, much bigger than anything we’ve seen on the supply side in the past, and the remaining companies will most likely end up being very dominant. So if you’re a supplier and you’re not careful, you can fall behind to a point where you can’t catch up. In my opinion, all suppliers in the US need to move quickly now if they want to be a success.