As Therese Hillman addressed investors about NetEnt's acquisition of Red Tiger Gaming, there was no doubt as to who the major party is.
The supplier’s CEO did all the talking and, with market cap of SEK 6.2bn ($640m and over twice the value it paid for Red Tiger), that comes as no surprise.
Whether Hillman did enough to convince investors in the short term remains to be seen, although the market’s initial reaction to the acquisition was positive: share value rose from SEK 26 to SEK 30 since news broke (but fell slightly after Hillman's conference call).
So what did she say about the £220m ($270m) deal?
Customer combination & UK presence
During a rather short 10-minute presentation, the CEO revealed NetEnt had begun looking at Red Tiger "a couple of years ago." Established in 2014, Red Tiger’s games and marketing tools have impressed its acquiring supplier, as well as its "modern" approach.
NetEnt believes Red Tiger offers a "strong growth profile" and is able to generate free cash flow. Hillman also emphasised the quality of Red Tiger’s daily jackpot games – repeatedly.
Where the CEO sees real growth potential is in Red Tiger's UK market presence and customer portfolio. She believes NetEnt will benefit from both the supplier’s UK operations and the fact it is already present in the Swiss market, which was regulated this July.
As for the supplier’s combination of customers, Red Tiger’s 50 clients were said to be a "very, very strong fit" when pooled with NetEnt’s existing 170. According to Hillman, Red Tiger is stronger with partners NetEnt itself is weaker with and vice versa.
Not giving too much away
During Hillman’s 15-minute Q & A session – again, not too lengthy – the NetEnt CEO remained tight-lipped on certain issues.
When questioned, she said Red Tiger’s growth rate is "high" but couldn’t share exact numbers. She did however, admit Red Tiger enjoys a higher growth rate than NetEnt did during the same period in its trajectory.
According to Hillman, Red Tiger’s UK market share is currently similar to that of NetEnt, although it represents less than half the company’s revenue. Its growth primarily lies in Europe, with its Asian exposure "decreasing a lot" in recent years.
When asked why NetEnt couldn’t simply recreate the daily jackpot games which impressed it so much, the CEO replied: "It’s all about timing. You could copy the games but it’s Red Tiger’s IP within the industry. You don’t want to be a copycat."
Hillman also didn’t give too much away when asked why she can’t disclose current revenue numbers; NetEnt will instead wait until its Q3 report.
There was obvious relief in Hillman’s voice when she confirmed NetEnt will consolidate Red Tiger’s numbers into its Q3 financials. "Thankfully, it’s early September and not the last week," she said.
But the two brands will remain separate and competition will be encouraged between the two. Hillman explained: "I’m convinced there’s demand from all customers to take on their games. With the distribution we have, this can go faster together. There’s definitely synergy.
"They’re on a journey; we would like to boost that journey with our compliance and legal expertise. That is the main rationale for this. NetEnt offers regulated market knowledge that will benefit them."
The CEO was adamant the acquisition does not limit NetEnt’s potential to invest in live casino, while she praised Red Tiger’s culture and its senior management’s "loyalty."
"We are very impressed by their dedication," Hillman said. "Of course, they will not stay forever but I’m convinced they want to take part in building something very, very big with us.
"This was a fast, intense process. We are confident we are going to build something really, really strong."
Perhaps the quick nature of the M & A prompted a rapid, no-nonsense conference call. All things considered, Hillman presented a strong, albeit brief, case for a bright future together for NetEnt and Red Tiger. Whether this M & A can reverse NetEnt’s fortunes elsewhere however, is a more complex issue.
The likes of Playtech (acquiring Snaitech) and Stars Group (acquiring Sky Betting & Gaming) have shown large-scale M & A can understandably boost financial results moving forward. Those consolidated results will no doubt show high growth for Hillman’s firm.
But, just like with Playtech, Stars Group and other acquiring parties, like-for-like numbers will remain the same unless NetEnt addresses its struggles in other markets.
NetEnt reported revenue of SEK 837m for H1, dropping 3% year-on-year, while Q2 was down 4% to SEK 419m. During both its Q1 and Q2 trading reports, the supplier highlighted weak development in the Nordic countries. For 2018, revenue was up 9% to SEK 1.7bn but Hillman was unhappy even with those levels (which have dipped since).
Red Tiger’s UK portfolio will certainly help in this regard, as one way of combating poorer Nordic performance is naturally to concentrate on other markets.
But returning to impressive growth levels certainly won’t be a quick fix for NetEnt. It has surprised the market with its Red Tiger acquisition, which should be applauded overall. Some of Hillman’s answers though, won’t have convinced the market NetEnt has found solutions to its pre-existing problems.