NetEnt integrates Red Tiger to realize further synergies

The online gambling leading developer NetEnt announced new changes in the organization and a full integration with recently acquired Red Tiger Gaming. This new process is aimed to strengthen competitiveness and increase efficiency. NetEnt has previously expressed its interest to merge with Red Tiger, which was acquired in September 2019. This new addition to the company's network has surpassed expectations and offers remarkable potential synergies, increased efficiency and economies of scale. 

A NEW RESTRUCTURING PROCESS
The company is currently implementing a restructuring, in order to speed up the full integration within the NetEnt group. This will result in the relocation of several functions, as well as a reduction in the workforce by approximately 120 employees, mainly in Stockholm and Malta.

These current measures conform with NetEnt’s approach to perpetually improve all segments of the business, in order to strengthen competitiveness and increase value creation in the company. The restructuring is predicted to result in annual savings of approximately SEK 150 million on a cash-flow basis, starting in the second half of 2020. In that event, NetEnt is increasing its initial estimate of potential synergies from the acquisition to around SEK 250 million annually (from previously announced SEK 150 million per year).

The restructuring is expected to cost the company approximately SEK 25 million, which will be reported as non-recurring items negatively affecting operating profit for the first quarter of 2020.

ACHIEVING FINANCIAL GOALS
NetEnt also announced that Red Tiger’s earnout will be redeemed through future earnings if the business achieves certain financial goals. Since this financial liability item was previously reported using the discounted net present value, the early redemption leads to an increase in financial costs of approximately SEK 35 million, in the first quarter of 2020. As a result, the company’s net debt will decrease by 100 MSEK.

Therese Hillman, Group CEO of NetEnt, commented on the matter: “We are now entering the next phase of the integration with Red Tiger, whose sellers are also becoming shareholders of NetEnt. The integration will unleash the full potential of our shared capabilities, create significant efficiency gains in games development and strengthen our position as the market leader in online casino”.

The aftermath of COVID-19 is hard to anticipate, and the effects can unexpectedly change. However, NetEnt’s actions thus far have not been negatively affected by the outbreak. NetEnt's earnings were consistent with market expectations during the first quarter of 2020, and are expected to be within the reach of approximately SEK 490-500 million.