LeoVegas and Royal Panda

LeoVegas Acquisition of Royal Panda

LeoVegas announced last month that it would be buying all shares of Web Investments Limited, the company behind the Royal Panda brand. That deal has now been completed, with LeoVegas International paying an initial amount of €60 million to acquire the company. There is also a possible earn-out payment that is worth another €60 million, meaning that the total fee could increase to €120 million.

LeoVegas have long been keen to expand out in order to get a firmer grip on regulated markets, such as the United Kingdom, which the purchase of Royal Panda allows them to do. The company has released a statement saying that the acquisition allows the company to add a ‘strong and exciting brand to the LeoVegas Group’. The earn-out payment will be calculated towards the end of the year, offering the final price for the deal.

Why LeoVegas Wants Royal Panda

The most obvious question to ask when such a move like this takes place in the markets is why the buying company has decided that the selling company is worth purchasing. In the case of LeoVegas’ decision to buy Royal Panda, it’s all about strengthening their position in the UK market. The primary focus of Royal Panda has long been British players, which account for 50% of their third-quarter revenue.

The online casino brand has recently launched a sports betting platform, which might help to explain the revenue growth of 61% during the third-quarter of 2017, taking their income to €9.8 million, with an estimated EBITDA of €3.2 million. Buying a profitable company with ties to the United Kingdom’s gambling market is something of a no-brainer for a business that is looking to expand its operation there.

The proprietary technical platform that Royal Panda boosts will also be of interest to LeoVegas. With around 60 employees currently working for the company, the majority of whom are at the head office in Malta, Royal Panda has the experience that LeoVegas can take advantage of. The company’s new long-term target will be organic growth above the online gaming market, in order to ensure its success.

LeoVegas Happy

Unsurprisingly, the Chief Executive Officer of LeoVegas Group, Gustaf Hagman, has spoken of the company’s delight at the deal going through. He noted the manner in which Royal Panda had built up ‘an efficient business’ in a relatively short space of time. On top of this, Hagman also noted that Royal Panda has become an ‘exciting and strong brand’, which LeoVegas can now use to appeal to a wider British audience.

He said, “With the help of the strong symbolic value in the panda, the company has built a premium brand among gamers, and we will complement LeoVegas with Royal Panda. This gives us two great brands with global appeal, which makes the scalability in the continued growth strong while strengthening our position in the UK.” That sense of scalability is doubtless another reason for the decision to buy Royal Panda.

M & A Strategy Key to LeoVegas Plan

The purchase of Royal Panda is yet another example of LeoVegas’ merger and acquisition strategy, which has proved to be successful thus far. The Swedish gaming company was launched in 2011 by Gustaf Hagman and Robin Ramm-Ericson, achieving remarkable growth in the years that followed thanks to its tactic of aiming its offerings at smartphone users, which Hagman described as the ‘fastest growing channel for entertainment’.

In March of this year, the group paid €6 million for 100% of Winga s.r.l., an Italian gambling operator. The company then went on to sign a sponsorship deal with Brentford, the English football club that plies its trade in the EFL Championship. The two moves signalled the company’s intent, coming roughly a year after it had launched a UK-facing sportsbook under the LeoVegas Sport banner. It’s unlikely that this will be the company’s last acquisition.

Where the Money Will Come From

Headquartered in Stockholm, LeoVegas Gaming Limited obtained debt financing of €100 million in order to get the deal done. The money will also give the company the room for further purchases in the future, which is why Royal Panda is unlikely to be their last acquisition. €40 million of the €100 million the has been obtained will constitute a revolving credit facility, with the deal expected to go through on December first.

The acquisition as also led LeoVegas Group’s Board of Directors to adjust the financial targets of the company moving forward. Whether the earn-out payment will be owed will depend on certain financial targets being met. These targets include the following:

  • A minimum of €50 million in Net Gaming Revenue
  • EBITDA of €15 million or more
  • At least €34 million Net Gaming Revenue must come from the UK
  • EBITDA from UK must amount to €5 million or more

LeoVegas’ strong cash position has been used initially, though the debt financing will be used when it comes to the actual purchase. The financing of the debt has terms of three years, with amortisation due to commence in the second-quarter of 2019, with the quarterly amount standing at €10 million. As far as can be ascertained, the debt will be financed with an interest rate of 2%.