The €340 million takeover of Nolimit City appears to fit with Evolution’s plan of releasing fewer, but more unique, games. But will this be enough to establish the provider with a leading position in slots as strong as its live casino dominance?
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Evolution confirms low-volume slot strategy with Nolimit City acquisition
Since taking over NetEnt in 2020, Evolution has made it clear that it wants to be more than just the live casino giant, but a “one-stop shop” for online casino operators.
From this viewpoint, the acquisition of slot developer Nolimit City makes sense.
However, Evolution’s Random Number Generator (RNG) division has generated little natural growth to date, based on recent outcomes.
However, Georg Attling, Equity Research Analyst at Pareto Securities, highlights that this is primarily due to a change in plan. The provider has moved away from frequent game releases in favor of higher quality slot content.
“It’s true that Evolution’s RNG division hasn’t lived up to our expectations in terms of growth so far,” Attling clarifies. “However, this is mainly due to the redesign of the game release process.
The process of releasing new games was completely revamped by Evolution after acquiring NetEnt and Red Tiger, as it was deemed inadequate. This resulted in a decrease in new game releases, which, according to Attling, presented challenges. However, he anticipates a shift in this trend soon.
He stated, “We anticipate a surge in game releases in the latter half of the year, which will contribute to the division’s renewed growth.” He also emphasized that the deliberate decision to prioritize quality over quantity was the reason behind the RNG division’s underwhelming performance thus far.
Kevin Dale, an expert from Egamingmonitor, believes that Nolimit City is a perfect match for Evolution’s vision for NetEnt.
He remarked, “Nolimit City’s games stand out, particularly in their visual and thematic elements. Their darker titles, such as Mental, Deadwood, San Quentin, Misery Mining, Fire In the Hole, and Tombstone, are particularly popular.
“Their focus on quality and innovation, rather than sheer volume, makes them an excellent choice.”
Evolution’s CEO, Martin Carlesund, echoed this sentiment about Nolimit City’s unique approach during an investor call earlier today.
He highlighted that unlike other game developers, players can readily identify Nolimit City’s creations.
As a result, Carlesund stated its content attracts “high-stakes slot players.”
“It’s a very specialized market,” he clarified. “It’s visually appealing, highly captivating, and has solid mechanics. Perhaps more appropriate for seasoned players, but anyone who enjoys Nolimit slots will be attracted to it. They understand they’re playing Nolimit – it’s very evident.
“These games fill a void we lacked previously, clearly.”
Therefore, Attling stated the agreement represents a further commitment to Evolution’s slot strategy.
“It reinforces Evolution’s dedication to the area,” he mentioned. “I believe it’s a doubling-down approach because the potential has been recognized, not to revive a sluggish sector.”
Seamless integration?
Regarding integration, Dale highlighted that Evolution has tackled the challenges of integrating slot developers previously, so this process should be smoother.
“It should be simpler for Evolution to absorb than NetEnt or Red Tiger, especially since the product range is similar and they’ve done it before,” he stated.
However, he cautioned that the deal won’t provide Evolution with more operators, considering the size disparity between the acquirer and the acquired.
This takeover is fairly minor, adding almost sixty titles to their current collection of six hundred and thirty RNG games. The market share is also relatively modest: Nolimit City will contribute less than one percent to Evolution’s global content share (encompassing over two thousand operators), increasing it from twelve percent to thirteen percent worldwide.
Nolimit’s content has performed well in terms of distribution, with approximately ten percent of casino websites utilizing their content. However, considering Evolution’s enormous size, they will gain about twenty new operator websites through this transaction.
Subsequent Acquisition
Evolution briefly outlined Nolimit City’s financial standing, indicating that the company is highly efficient in converting revenue into profit. The developer anticipates revenue of thirty million euros in 2022, but its EBITDA is projected to reach twenty-three million euros.
These profit margins are comparable to those of Big Time Gaming, the creator of the popular Megaways mechanism, which was acquired by Evolution last year.
Attling believes that while favorable profit margins are always advantageous, this pattern is unlikely to reflect a broader strategy of specifically seeking out the most cost-effective businesses for acquisition.
“Evolution has stated that it prioritizes expansion over profitability, although it still achieves industry-leading profit margins,” he explained. “I believe the acquisitions follow the same reasoning. Growth and quality are paramount, high profit margins are a desirable feature, but not a necessity in the short term.”
Should Evolution feel confident in their ability to expand a low-profit business in a more developed stage, then acquisition goals would not be unattainable.
Carlesund alluded to the future path of Evolution’s mergers and acquisitions strategy. He stated that slot machines are a natural area for Evolution to continue acquiring, but he would not dismiss the possibility of taking action in the supplier’s core live casino area if it brought new material to its collection.
“I don’t believe there’s the possibility to acquire a live company, but who knows? Perhaps it will occur,” he stated. “But there might be some technology like Digiwheel, where we simply require that piece of hardware or software, or require growth to improve our games.
“In slots, we have a more defined understanding of our objectives. We aim to be a complete provider, but most importantly, we want to deliver the best material in the world to users.
“There are some things we require there, but I believe we have found them now.”
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