Will the CMA Approve the Proposed Merger of NetEnt and Evolution Gaming?

Under Investigation Stamp

After Evolution Gaming announced plans to acquire slots software firm NetEnt for an eye-popping £1.7 billion, the UK’s Competition and Markets Authority (CMA) has revealed it is investigating the bid to ensure that competitiveness in the online casino gaming sector is not compromised.

The CMA, a government agency, have the primary responsibility for tackling proposed acquisitions that have a monopolist feel to them, and at the end of September they opened an investigation that will look much closer at the terms of the deal.

According to the official case file, the CMA are now ‘inviting comments’ on the merger until the close of play on Monday October 5, and then a decision from the first phase of the investigation is expected to be announced on or around Monday November 16.

“The Competition and Markets Authority (CMA) is considering whether it is or may be the case that this transaction, if carried into effect, will result in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services,” is their official position.

World Domination Awaits

Digital Globe Image

You can’t fault the ambition of Evolution, who have already stated that their aim is to become ‘the world leader in the online gaming industry.’ The acquisition of the major slots developer NetEnt would certainly assist with that quest.

The £1.7 billion bid will certainly test the market, and it has been reported by Evolution that the holders of more than 20% of NetEnt’s shares have already intimated they will accept the offer, while the remainder will be urged to do likewise by the firm’s board of directors.

Mathias Hedlund, the chairman of NetEnt, has already welcomed the deal, claiming that the merged entity would be able to enjoy increased expansion in key markets such as the UK and North America.

Meanwhile Jens von Bahr, who is the CEO of Evolution, said that the combination of their premium quality live casino games and NetEnt’s rich history in slot development would be the perfect marriage – delivering ‘a world class portfolio of online games that will enable us to serve a growing customer base.’

The original plan had been for the merger to be completed by November 2, which would have helped the two brands to formalise their plans for 2021 and beyond. However, the CMA investigation has scuppered that timeline.

Money Talks

Business Growth Chart 2020

Even by conservative estimates, the combined revenue of Evolution and NetEnt in 2019 was approaching the £500 million mark, and that was despite a raft of new regulations across their target markets putting additional pressure on online casino gaming.

The thought is that 2020 will be equally profitable given all that has gone on, and the growth in America and Asia – Evolution’s turnover in the latter almost tripled in the first half of the year – is just one reason why the two brands want to pool their resources.

Founded in 1996, NetEnt is widely regarded as the major player in slot game development, challenged by only Microgaming in terms of the scale of their projects. They employ more than 1,000 people in offices around the world and in 2019 they made more than £140 million in revenue.

Evolution, meanwhile, have focused on live game development since their establishment in 2006, creating studios in Europe and in New Jersey – with more planned for Pennsylvania and Michigan – in which they film their content before streaming directly to their suite of more than 300 operators.

By pooling their powers, Evolution ad NetEnt would be able to overpower the market and, perhaps, seek to acquire other games development firms as their pursuit of world domination continues….CMA decision pending, of course!