Global Gaming Purchase: Synergy and Economies of Scale

About the expert:

Dainis Niedra is a professional betting and gambling manager. He has previously been the Director of an entertainment complex, organized various poker series and he was even the head of the Latvian poker federation. Currently, Dainis is Enlabs Managing Director of Center Eastern Europe (CEE). Enlabs owns bookmaker Optibet, which is the largest betting operator in the Baltic States.

How and why we are purchasing a company that owns the Ninja Casino brand?

The elevator is not the only thing which can take you to the top. Sometimes, to get higher, you can also use a ladder. For business growth and development, taking a small step can be made through the purchase of another company. Most commonly this can happen with acquisition and less commonly with a merger. A merger is often extremely complex because the two (or more) companies have to combine to create a completely new one. The merged company can have a unified name (ExxonMobil) or a completely new one (Stellantis - a merger of Peugeot and Fiat). An acquisition is simpler and just means the purchase of one company by another.

There are many different reasons to make these deals, but there are always two goals. Either synergy and/or economies of scale. Synergy is about growing sales (topline), economies of scale are about reducing costs by eliminating duplicative functions, reducing fixed costs and obtaining savings from increased sales.

Enlabs is currently in a takeover transaction where we are the buyer. Considering that both companies are public (the shares are listed on the stock exchange), this process is extremely complicated and slow. I'll tell you in general terms what is happening now and what preceded it.

On June 8, at the beginning of summer, we announced that we had become the largest shareholder of Global Gaming 555 AB (Nasdaq: GLOBAL). Through several OTC transactions, we bought over 11 million shares at a price of 8 kroons per share (0.77 euros) and about a million on the open market, which gave us a 29.9% stake in the company. With a stake of more than 30%, we would be obliged to make a public offer to buy back shares from all remaining shareholders. On August 6, an extraordinary board meeting was convened, where we proposed changes to its composition, which were adopted. On August 26, we announced that we had increased our stake to 54% by purchasing an additional 11 million shares at a price of 11 kroons (1.06 euros) per share.

Thus, over the next four weeks, we had to make a mandatory public offer to buy back shares from the rest of the holders. On September 21, at the time of the public offering, we already owned 66.7% of the shares. The public offer was made in the form of three options: an exchange of shares for cash at a price of 11 kroons per share; exchange of Global Gaming shares for Enlabs shares at the rate of 1:0.36; or a hybrid - half in cash, half in stock. Shareholders must decide by November 2 which option they would like. The results will be published the next day.

Why is this company so interesting to us? Global Gaming operates several online brands in Scandinavia and Estonia, the most famous of which is Ninja Casino. Ninja Casino is a top 3 casino brand in the region.

Sweden is considered one of the largest gambling markets in Europe, and Ninja Casino was the most popular online casino operator until the company lost its license last year. In this regard, the share price at some point was only at the level of 8-9% of the maximum historical indicator. In the second quarter, the company recorded a small operating profit with 7 million euros in revenue. The brands of the group operate on someone else's platform and do not offer customers any other product except a casino. There are obvious synergies (launching a new brand in our key markets and adding new verticals to existing Global Gaming brands) and obvious economies of scale (moving brands to our platform, optimizing human resources and supplier contracts).

So far, that's all I can tell you. When we have closed the deal entirely, I will definitely describe the whole process in extra detail.