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Sega Sammy Creation (SCC), a Sega Sammy Holdings subsidiary, has struck a deal purchase the entire GAN business for $1.97 per share.

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The total is a 121% premium on the $0.89 closing price of GAN shares as of market close on 7 November 2023.

With 44.68 million outstanding shares, the Japanese entertainment company is set to pay a total consideration of approximately $88m for the business.

However, the overall acquisition price is estimated at closer to $107.6m once the outstanding shares, stock options and advisory expenses have all been taken into account.

Sega Sammy was formed by the 2004 merger of the Sega and Sammy corporations. 

Today, the Japanese gaming giant develops video and arcade games, manufactures pachinko terminals, and has a resort business unit. It is best known for creating popular video games like Sonic the Hedgehog.

GAN chairman and interim CEO Seamus McGill said: “After a thoughtful review of value creation opportunities available to us, we are pleased to have reached this agreement with SSC.

“Market share concentration in the US B2C space, a slower than expected adoption of regulated online gaming in the US, along with changes to key customer contracts make the near-term operating environment challenging without ample capital resources.

“Sega Sammy has those resources and GAN is a strategic complement to their existing gaming portfolio. We believe this all-cash offer, at a substantial premium to recent trading prices, is the value-maximising path for our shareholders.”

The deal is subject to approval by GAN shareholders, with a 31 March 2024 deadline for the shareholder meeting. Sega Sammy said it expects to close the deal by December 2024.

Sega Sammy’s planned US expansion

As part of its investment strategy to 2026, Sega Sammy said it intends to invest $660m in gaming.

As such, the business has been identifying and evaluating investment opportunities in iGaming and online sports betting “particularly in the rapidly growing US market”.

Sega Sammy said it intends to enter the iGaming market prior to wider legalisation. At present only six US states allow consumers to gambling on online casino.

The company said it expects more operators to enter the market as states regulate. Sega Sammy said GAN’s technological solutions will be “highly competitive” in this environment.

Sega Sammy also highlighted potential synergies between GAN’s B2B supplier solutions business with its customer base and content development capabilities.

“We decided to proceed with this acquisition because it aligns with our growth strategy and believe that it will greatly contribute to the expansion of our gaming business and gaming portfolio,” said the business.

As part of the deal Sega Sammy will also acquire GAN’s B2C operation, Coolbet, which is active in European and Latam markets and is understood to be the major driver behind the deal.

However, Sega Sammy did not choose to highlight the brand in its investor release outlining the acquisition. Rumours first emerged at G2E this year that Sega was close to a deal for Coolbet.

GAN’s journey with Coolbet

GAN initially acquired Coolbet for a sum of $175.9m in cash and stock in January 2021. 

This strategic acquisition was intended to position GAN as a full-service B2B solutions provider for real-money gaming in the US, while also bolstering its standing as a vertically integrated B2C operator.

However, the integration of the Estonia-headquartered bookmaker into GAN’s operations did not go as planned. 

In 2022, Coolbet founder Jan Svendsen claimed he was “pushed out” of the business post-acquisition.

Svendsen’s concerns led him to scrutinise GAN’s organisational structure, ultimately prompting calls for changes within the company’s board and the removal of CEO Dermot Smurfit.

However, Smurfit only resigned in September 2023 after 13 years as CEO, to be replaced by Seamus McGill on an interim basis.

Turbulent stock market performance

GAN entered the US stock market almost three years ago and faced a turbulent journey during this time. 

The acquisition rumours at G2E led to a 24% surge in share price to $1.24 in October.

Despite this small recovery, the company has experienced a slump in its share price since the summer, which is down 43.2% since early August.

This is a continuation of a prior trend. The stock price exhibited a consistent decline, falling from its peak of over $30 in February 2021 to a low of $0.89 reached at close last night.

Financial challenges

Last year, GAN reported substantial losses of $197.5m, marking a significant increase from the previous year ($30.6m).

A major portion of these losses was attributed to a write-down in the value of Coolbet.

In its annual report, GAN acknowledged that the “market price of our publicly traded shares and resulting market capitalisation of our business has experienced a significant and sustained decline since our acquisition of Coolbet.”

To counter these challenges, the company implemented cost-saving measures, which included staff and cost reductions, renegotiated credit facilities and identified additional sources of capital.

In fact, Sega first became involved in GAN’s operations when it refinanced GAN’s corporate debt in April 2023.

During that time, GAN disclosed that its former lender, Beach Point, had transferred its $30m term loan to Sega. 

GAN also struck an additional deal with Sega to borrow $12m, primarily to cover fees owed to Beach Point and to fulfil general corporate needs.

In Q2 2023, GAN generated total revenue of $33.8m, reflecting a decrease of $1.2m compared to the same period in the previous year.