The €340 million takeover of Nolimit City appears to align with Evolution’s plan to release fewer, but more unique, games. But is this enough to grant the provider an insurmountable advantage in the slot sector, similar to its dominance in live casino?
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Evolution confirms its low-volume slot strategy with the purchase of Nolimit City
From the moment it purchased NetEnt in 2020, Evolution made it clear that it aimed to be not only a live casino behemoth, but also a “one-stop shop” for online casino operators.
From this perspective, the acquisition of slot developer Nolimit City is clear.
However, Evolution’s Random Number Generator (RNG) division has produced minimal organic growth to date, based on recent results.
However, Georg Attling, equity research analyst at Pareto Securities, points out that this is primarily due to a shift in strategy. The provider has abandoned frequent game releases in favor of higher-quality slot content.
“It’s true that Evolution’s RNG division has not met our expectations in terms of growth so far,” Attling explains. “However, this is mainly due to the restructuring of the game release pipeline.”
The process of developing new games at Evolution essentially came to a halt after acquiring NetEnt (and Red Tiger) because the quality wasn’t deemed satisfactory. This hindered their growth, but they anticipate a turnaround in the near future.
They are anticipating a surge in game releases during the latter half of the year, which they believe will contribute to their renewed expansion. Therefore, their current slowdown is a strategic maneuver that will ultimately benefit them.
Kevin Dale, a representative from Egamingmonitor, believes that Nolimit City aligns perfectly with Evolution’s revised strategy.
“Nolimit City’s games are truly unique, boasting captivating visuals and innovative concepts,” he remarked. “They specialize in games with darker themes, such as Mental, Deadwood, and Tombstone.
“They excel at crafting high-quality games, prioritizing originality over sheer volume.”
Evolution’s CEO, Martin Carlesund, emphasized that Nolimit City’s games possess a distinctive quality that makes their origin readily apparent.
Consequently, Carlesund highlighted that its content attracts “seasoned slot players.”
“This is a highly specialized niche,” he explained. “It’s visually rich, highly engaging, and has solid mechanics. It’s perhaps better suited for experienced players, but anyone who plays Nolimit slots will be drawn to it. They know they’re playing Nolimit – it’s very evident.
“These games fill a void we didn’t have before, clearly.”
Therefore, Attling stated the agreement signifies a further dedication to Evolution’s slot strategy.
“This confirms Evolution’s commitment to the space,” he said. “I believe it’s a doubling down strategy because they’ve seen the potential, rather than a way to revitalize a sluggish sector.”
Seamless integration?
Regarding integration, Dale indicated that Evolution has already addressed the challenges of incorporating slot developers, so the process should be smoother.
“It should be easier for Evolution to absorb than NetEnt or Red Tiger, especially since the product range is similar, and they’ve done it before,” he said.
However, he cautioned that the agreement won’t provide Evolution with more operators, given the difference in scale between the acquirer and the acquired.
This takeover is relatively minor in terms of content, adding nearly 60 titles to their current collection of 630 random number generator games, and also minor in terms of market share: Nolimit City will contribute less than 1% to Evolution’s global content share (covering over 2,000 operators), increasing their global share from 12% to 13%, he said.
Nolimit’s content has performed well in terms of distribution, with about 10% of casino websites featuring their content. However, considering Evolution’s extensive reach, they will gain approximately 20 new operator websites through this agreement.
The subsequent transaction
Evolution outlined Nolimit City’s financial performance, indicating that the company is highly effective at converting revenue into profit. The developer is anticipated to generate €30 million in revenue in 2022, but its earnings before interest, taxes, depreciation, and amortization (EBITDA) are projected to reach €23 million.
These profit margins are comparable to those of Big Time Gaming, the creator of the popular Megaways mechanic, which was acquired by Evolution last year.
Attling believes that while healthy profit margins are always an advantage, this pattern is unlikely to represent a broader strategy of specifically targeting the most cost-effective businesses for acquisition.
“Evolution has stated that it prioritizes expansion over profit margins, but it still achieves industry-leading profit margins,” he said. “I believe the acquisitions adhere to the same logic. Expansion and quality are paramount, high profit margins are a bonus, but not essential in the short term.”
If Evolution feels it has the power to guide a less lucrative firm toward a more developed phase, then the scope of potential acquisitions wouldn’t exclude this entity.
Carlesund himself hinted at the potential direction of Evolution’s future mergers and acquisitions strategy. He indicated that slot machines are a natural area for Evolution to continue acquiring, but he wouldn’t rule out purchases within the supplier’s core live dealer sector if it brought fresh components to its product assortment.
“I don’t believe there’s potential in acquiring a company in the live dealer space, but who knows? Maybe it will occur,” he stated. “But there might be some technology like Digiwheel that we just require the physical or digital components, or both, to enhance our games.
“In the slots space, we have a clearer understanding of our targets. We aim to be a fully equipped provider, but most importantly, we want to deliver the highest quality content globally to our users.
“We still need a few things, but I believe we’ve found them now.”
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