After a disappointing 2016 performance, International Game Technology is selling DoubleDown – the social casino business it first acquired in 2012 – for $825 million.
The global gaming manufacturer and supplier will sell the entity to DoubleU Games, a social casino operator based out of Seoul, South Korea for a valuation of 10.5 times its full-year adjusted EBITDA for 2016.
“Since acquiring DoubleDown in 2012, IGT has grown it into one of the largest and most successful brands in the North American social casino market,” said Marco Sala, CEO of IGT.
“After several years of strong, organic growth and increasingly attractive valuation levels, the time is right for us to maximize the value of this asset for our shareholders. We will continue participating in the growth of the social casino market through our multi-year, strategic partnership with DoubleU Games,” Sala continued.
Despite a promising start, DoubleDown failed to set itself apart in what would quickly become a crowded social casino space and became a drag on the company’s balance sheet.
“DoubleDown trends were disappointing in 2016. Daily active users declined with proliferation of competing aps that offered compelling social features and the mobile functionality,” Sala said on the company’s fourth quarter earnings call in March 2017, emphasizing the new competitive realities. “One of the reason why DoubleDown is suffering is increased competition – and increased competition has been very often driven by new applications.”
Gaming service revenue in IGT’s North America Gaming & Interactive segment fell from $263 million to $230 million year-over-year in the fourth quarter of 2016, a dip largely driven by its slumping social casino segment. For the full year, DoubleDown revenues declined 14 percent from 2015.
Analysts on Wall Street viewed the deal as positive movement for the company, even as many of them criticized the initial acquisition in 2012 for $500 million amid questions as to where social gaming fit into the company’s broader business model.
“The transaction presents a good price that generates earnings and valuation accretion at a time when the stock is under pressure,” said David Katz, of the Telsey Group.
“The competitive landscape in the social casino business has tightened and there is no indication it will improve, which suggests the timing is opportune. Irrespective of incremental investment since acquisition in 2012, the sale price implies a solid return on the $500 million acquisition cost,” Katz added.
On the fourth quarter call, Sala hinted that he was receiving regular interest from potential buyers, but insisted that IGT saw DoubleDown as an “attractive and natural complement” to its core activities and that it had the “right strategies” to grow the segment organically, including a new mobile application to be released in the second quarter of 2017.
Five weeks later, IGT is parting ways with the platform altogether. It will enter into a partnership in which it licenses its game library to DoubleU while providing game development, distribution and other services.
“This transaction represents a unique and value-accretive partnership combining the operational excellence of DoubleU Games with IGT’s world class slot content,” said Ga-Ram Kim, CEO of DoubleU Games. “With this partnership, we are excited and confident about DoubleU Games’ future as a global leader in social casino.”
IGT said proceeds from the transaction will go toward general corporate purposes such as paying off debt – of which it had $7.9 billion at its last reporting. The transaction is expected to close in the second quarter of 2017.
