Bally Technologies to buy social gaming company for $100 million
5 June 2014
By Howard Stutz
Better late than never.
Slot machine giant Bally Technologies joined its rivals in the rapidly growing social gaming business, saying Thursday it would pay up to $100 million to acquire Dragonplay, an Israel-based social gaming business.
Dragonplay, which generated more than $10 million in cash flow over the 12 months that ended March 31, is considered one of the industry’s top 10 grossing social game developers with 700,000 active daily users and 3 million monthly users.
The move comes more than two years after International Game Technology paid $500 million to acquire DoubleDown, considered the top social gaming website on Facebook.
Caesars Entertainment Corp. has made several social gaming acquisitions in the past few years and other slot machine manufacturers have made inroads into the business.
“We believe the price is reasonable, the deal makes strategic sense — putting proprietary Bally slot content on the Dragonplay platform — and gives Bally an additional growth driver,” J.P. Morgan gaming analyst Joe Greff told investors.
Social gaming takes place through free-to-play websites — either stand-alone or offered through social platforms such as Facebook. Operators of earn revenue through nominal fees customers pay to purchase virtual gaming tokens, often less than $1 for thousands of chips.
Social gaming takes place on multiple platforms, especially mobile devices.
Eilers Research predicted that the social gaming industry as a whole will produce $2.6 billion in revenue this year and the industry as a whole will reach $2.6 billion.
Credit Suisse gaming analyst Joel Simkins said Dragonplay may rank below its peers in the social gaming spectrum, but Bally’s slot machine content and table game content from recent Bally acquisition SHFL entertainment could boost the business’s performance over the next 18 months.
“Based on a discussion with the company, the acquisition was in the works for months and Bally has previously scouted out a number of social platforms,” Simkins said. “With the social gaming business here to stay, Dragonplay provides Bally an immediate entry into the only vertical it was missing at a fair price.”
Under terms of the deal, Bally will pay $51 million in cash and up to $49 million over the next 18 months. The transaction is expected to close next month.
“We expect this strategic acquisition to help position Bally at the forefront of social casino gaming,” Bally CEO Richard Haddrill said in a statement. “Dragonplay has proven remarkable foresight and leadership in the mobile space, which is the fastest growing segment of social gaming.”
Dragonplay, which was created in 2010, offers both poker, such as Live Hold’em Pro, and casino games through a social casino.
Stifel Nicolaus gaming analyst Steven Wieczynski said the investment community, which hammered IGT after its DoubleDown purchase in January 2012, might have a different view of Bally’s investment.
“We expect today’s announcement to bring out the skeptics, especially those who had gravitated toward Bally, given management’s decision to steer clear of deploying excessive capital into the relatively unproven social gaming space,” Wieczynski said. “The Dragonplay deal’s attractive multiple eases some of our concerns.
Shares of Bally on Thursday increased 54 cents or 0.95 percent amid a broad market rally on the New York Stock Exchange to close at $57.48.