Five things we learned from Evolution’s acquisition of Nolimit City

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Evolution has struck a deal worth up to €340m to acquire disruptive slots developer Nolimit City.

Below are five key takeaways for investors:

Missing piece of the puzzle

Evolution CEO Martin Carlesund said the acquisition of Nolimit City would add a “missing type of game” to the supplier’s content network as it aims to become the one-stop shop of online casino products.

Nolimit City has carved out a reputation for producing controversial slots. This has now become its USP, with games such as Remember Gulag, Punk Toilet and Das xBoot among its top performing titles.

Carlesund said Nolimit’s “very specific niche content” would complement Evolution’s existing RNG portfolio.

He said: “This is one of the truly innovative companies in online casino and is recognised in our industry for its cutting-edge technology and graphically rich player experience.

“Nolimit is a product developer with distinct content both in terms of style and storyline. It particularly speaks to advanced slot players who are looking for a richer player experience and plot twist.

“Nolimit has rocketed to prominence over the past years by calling out a unique style of slots, sometimes with dark themes, but definitely with a sense of humour,” he added.

A numbers game

Evolution paid an initial €200m in cash for Nolimit City, although that figure is is likely to rise to €340m by 2025. The €140m in future earn outs will be split between 2023, 2024 and 2025.

Nolimit City is expected to generate revenue of €30m in 2022 and EBITDA of €23m, demonstrating a strong EBITDA margin of 77% and a very profitable business.

The studio currently employs approximately 100 staff across three main locations in Sweden, Malta and India.

The co-founders, including Jonas Tegman, will remain with the company and will “continue to contribute to the new Evolution/Nolimit City combination” according to Carlesund.

Reacting to the deal, Nordic investment bank Redeye said: “The valuation on the initial consideration is c. 9x EBITDA which is attractive in our view (Evolution trades at c. 17x EBITDA 2022 and 13x EBITDA 2023E).

“Still, the acquisition is small compared to the size of Evolution and based on the 2022 financials we expect it to add around 2% to our EBITDA estimates.

“However, there could also potentially be growth synergies to realise as Evolution likely can add Nolimit City’s games to new operators where its games currently are not available.”

Talking of synergies

The 77% EBITDA margin means there will not be cost synergies for Evolution. Indeed, synergies resulting from the deal – outside of the obvious content expansion – are likely to be regional. For example, Nolimit City has not yet launched its games in North America.

There are also obvious technology benefits from joining the Evolution business, while Carlesund expects the biggest bonus to come from improved “output and delivery” of Nolimit City games, thanks to Evolution’s one-stop shop strategy.

On the one-stop shop operating model, Evolution investor Magnus Andersson told iGaming NEXT: “Evo’s strategy is turning out to be very similar to that of the luxury conglomerate LVMH, currently Europe’s biggest company.

“Besides dividends, they use their cash flow to purchase some of the best companies within the igaming business.

“Thus their cash is generating better and better returns and the company grows both organically and through the acquisitions,” he added.

A boost for RNG?

Evolution operates two key business segments: live casino and RNG slots. In Q1 2022, the live portion generated €264.5m in revenue amid a 44% annual rise.

RNG growth has been much harder to come by however, even with the acquired NetEnt, Red Tiger and Big Time Gaming businesses propping up the portfolio.

For the same period, RNG came in relatively flat at +1.8%, providing €62.3m of overall Q1 2022 revenue.

Despite the stuttering growth, Evolution has set ambitious targets for the RNG department and is aiming for double-digit slots growth by the end of 2022 and into 2023.

During yesterday’s investor call, Carlesund doubled down on that target. He said: “That has not changed, and I want to be clear on that.

“We have our double-digit growth target for the existing slots business and that remains 100% as it is.

“Nolimit is added on top of that, but I will say that I have higher expectations for Nolimit’s growth than on the double digits we already have for the existing business,” he added.

M&A roadmap

Finally, Carlesund did not rule out future acquisitions but explained to investors that he was content with Evolution’s portfolio of businesses following the Nolimit deal.

When asked specifically by Morgan Stanley analyst Ed Young whether the company would ever consider M&A in the live casino space instead of slots, Carlesund had this to say: “We’re a company that is never really happy as we want to do better every day.

“We are doing that in live and we are increasing the gap to competition. I don’t see the potential in buying a company in live.

“Maybe it will occur, who knows, but right now we don’t see that. Maybe there are parts of it, as you saw with Digiwheel, where we need this piece of hardware or software or a combination of both to build the new games. So that could happen,” he added.

About the author

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Jake Evans

Jake Evans is an NCTJ-accredited journalist and editor who has covered the online gaming and sports betting industry since 2017. He is the managing editor of iGaming NEXT and has previously worked in both content and data for EGR, Stats Perform and Football Radar.

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