The market has shown increasing confidence in Swedish gaming supplier Net Entertainment. This increased confidence is reflected in a rise in market shares following their acquisition of Red Tiger Gaming for £220 million.
After NetEnt CEO Therese Hillman announced the acquisition last week, some industry players posed the question of whether this move will solve the company’s existing problems. So far, the answer to that question seems to be a resounding yes. At the close of trading last Wednesday, NetEnt shares were at SEK 25.60. This week, they’re at SEK 33.00.
A financial analyst has commented: “As you can see from the share price, it’s been quite well-received. It’s up 30% in one week. It was on a five-year low before that. It’s come from a quite depressed share price level.”
The signs all point towards shareholders having recognised the acquisition’s strategic benefits. Red Tiger is known for its robust market share not only in the UK, but also in Asia. This perfectly suits NetEnt’s current goals. But it’s not just Red Tiger providing NetEnt with an advantage, because the opposite is also true. Being part of NetEnt gives Red Tiger a stronger presence in the Nordic countries and a connection to the U.S. market.
The market fully understands the need for consolidation, particularly in the slot supplier industry because it is in this industry where small firms typically face tight regulation coupled with steep costs. Additionally, this recent development is expected to lead to top-line synergies.
The financial analyst further commented about the NetEnt-Red Tiger deal: “NetEnt has had negative organic growth for two quarters and, with the inclusion of Red Tiger, which I think is growing I think 50% plus, the mix of those two will return NetEnt to organic growth. Perhaps not Q3, but from Q4 onwards and definitely from 2020, it’s going to look a whole lot better for NetEnt.”
“On top of Red Tiger, NetEnt’s also making a push into live casino and in the U.S. in general. All in all, it should definitely return to pretty good growth next year. It could be a turning point for NetEnt both operationally and from a share price point of view,” the analyst added.
As for Hillman, she revealed that NetEnt had started considering the deal with Red Tiger “a couple of years ago”. They were impressed with Red Tiger’s games and marketing tools, as well as the firm’s “modern” approach. They believe that apart from having the ability to generate free cash flow, Red Tiger also offers a “strong growth profile”. But what Hillman repeatedly emphasized in her 10-minute talk about the deal was the excellent quality of Red Tiger’s daily jackpot games.
Hillman also mentioned that the deal is perfect for the two companies because Red Tiger is strong with partners where NetEnt is weak, and vice versa. Other than the above revelations, however, Hillman has remained tight-lipped on other issues, such as Red Tiger’s exact growth rate. She only went so far as to say the company’s growth rate is high. She did say that the two brands will remain separate, and they are actually encouraging competition between the two.