NOVOMATIC UK’s growth has been dramatic, and not just in casinos. With a series of canny acquisitions, the company is now an entirely different animal. Underpinned by its business as a UK AGC/FEC operator, NOVOMATIC UK is now working toward organic growth after an acquisitive phase. Zane Mersich, NOVOMATIC UK CEO, spoke to Casino International about how he arrived at the company, what they have been up to and where they might be heading…
Casino International: What’s your background, Zane?
Zane Mersich: I’ve been in the industry for a decade, almost. I previously worked in several different industries, including packaging. I worked for a Dutch company, a Finnish company, and then joined the board of a large ex-UK firm based in South Africa before joining NOVOMATIC.
CI: You’re from South Africa, and 44 years old… You must have been leaving college or wherever when Apartheid was ending, and witnessed unique cultural changes in the country. Did that have any kind of influence on you?
ZM: Yes, possibly. It’s hard to say because you don’t know what to compare it to. We were brought up to be generalists in South Africa as opposed to specialists; my family were entrepreneurs, my father worked as a nuclear research engineer, but ultimately became an entrepreneur himself. You made things happen, that was the culture.
CI: You were appointed CEO of NOVOMATIC UK in early 2016…
ZM: I was working in Austria in 2007/08 for NOVOMATIC, learning about the industry – I had no prior experience of gaming, so needed some time to understand it. Subsequently, I have been leading all our UK business through the growth phases from my arrival in mid-2008. Before my appointment as CEO of NOVOMATIC UK, I was CEO of the Astra Gaming Group, which was the holding company for all our UK businesses at the time: that would include Astra Games, Bell-Fruit Games, Gamestec, RLMS, Mazooma Interactive Games and Luxury Leisure. Subsequent to that we have added Playnation and Talarius and re- branded under NOVOMATIC UK.
CI: If you didn’t know the industry, how did you get hired?
ZM: NOVOMATIC was growing rapidly and has always been a business that recognises you need good people from different backgrounds. I was very fortunate to have met the right person and as long as you have excellent business sense, love the industry and the products you have a good chance of being successful. The thing about gaming is, you will not be successful if you don’t love the product and the industry, you need to love the games and people. And who wouldn’t? So I found a role and started to work with the company. When the opportunity arose here in the UK, they needed someone to drive the UK business forward. At that point, we were quite small and had less than 100 people at Astra Games. My mission was to grow a solid UK footprint. The UK has always been a good, stable, innovative gaming environment; the industry is established and mature, and it is arguably the most regulated, though is reasonably sensible. But more than that, it is stable and there are unlikely to be any major shifts and changes. It’s also a big industry, and as a European company, it was important for us to establish a meaningful business here in the UK. Astra Games was the base from which we grew, and at the time it was quite difficult because in 2008 the Lehmann Brothers bankruptcy devastated the financial markets, which was a game changer for many different sectors and companies. Nobody saw it coming, it just arrived.
From there I realised it would be more difficult to achieve the more organic growth I had hoped for because there was less investment in product, customers were risk averse and simply not investing, there was great uncertainty, and it’s hard to grow in that kind of environment. However, change equals opportunity, so we took a different approach and decided to look at acquisitions. Companies with private equity or hedge fund ownership started thinking they needed cash, not assets. We started acquiring at competitive prices – Bell-Fruit Games, Gamestec and others, and this was the start of our growth. We knew that we could grow further from there. NOVOMATIC is also a major operator in Europe, and that’s something we lacked in the UK, so we got involved in that sector as it is a core competency for us globally. We looked around and found an opportunity to buy the Noble Group, a superbly-run family business that gave us the skills we needed and a sound base with which to grow our AGC business. There is no doubt that Nobles was the leading AGC operator in the UK and as a result, we also secured the best people. A couple of years later we bought the Talarius business, which we could bolt on very nicely to the Luxury Leisure business – they continue to operate as Talarius and Luxury Leisure but under the NOVOMATIC UK operating umbrella, with one Managing Director responsible for both companies. We will continue to make smaller acquisitions if the time and the deal are right, there is always a move to expand.
CI: Some of your acquisitions put your products into British pubs, a very tough market to compete in.
ZM: Yes, we were in the pub sector and launched a digital product for that market, iPub, which is still going strong, and we are now operating iPub2 which has set the bar even higher. It’s an area that is now about 20% digital and is a tough market to compete in, pubs are closing but that is perhaps a natural attrition in so far as there are so many other entertainment offerings and ways to spend your money. There are still around 50,000 pubs, however, so there is still opportunity. You need to have a specific strategy for your business now; some chains were wet-led groups and have added food, for example, with a focused strategy and they’re seeing growth. You’ve got to realise where you are and target your customers accordingly. You have to meet their needs. The large Pubco businesses are quoted on the LSE and are serious corporate animals and need to be dealt with professionally, they are sophisticated buyers.
I think digital gaming in the pub sector may provide the opportunity for pubs who might be looking at a wet-led offer, maybe more high-end, more inner-city and trendy, you can see a digital machine or two having more impact rather than a traditional analogue machine. But we are also innovating in analogue with LED lighting, hybrid products and reels. We have some good franchises such as Batman and Sherlock Holmes, and are developing some innovative products in both digital and analogue versions.
CI: With your domestic acquisitions you have almost Brexit-proofed the company as you have such a strong domestic underpinning. You’re not reliant on Austria, you have almost created a miniature NOVOMATIC that can survive on its own. And post-Brexit, we will likely be seeing growth again in the ‘staycation’, which will benefit your model.
ZM: For us, we are massively proud to be part of NOVOMATIC, and their support has made everything possible in the UK. There is a tremendous amount of investment into the UK to create all of this, and they have always been supportive and had an affinity for the UK. We want to be a successful, value-adding addition to the UK gaming space, whether it’s pubs, casinos, AGC’s…
We have also bought Playnation, a massive operator of pay-to-play equipment in motorway services, holiday parks and other leisure offerings like bowling alleys. That’s another example that, should Brexit prove more of a challenge than many expect and we do start to see people staying in the UK, we will indeed benefit because we are in holiday parks, motorway services… We operate around 20,000 coin and note-operated devices in Playnation alone, of which around 6-7,000 are gaming machines, and the rest are non-gaming like cranes, pushers, video products. It’s not just about gaming, it’s family and leisure, and that’s a nice mix for us to have. When we provide product to these customers we are not just about gaming, we have a wide spread of product, and we can address all their needs.
Of course, being an operator and a manufacturer means we have a great way to get the product absolutely right before making it available to customers. You don’t do the brand any damage by testing significant numbers of machines which may not make the grade – you try those products in your own locations and then have a much greater chance of those machines being successful all the way down the line.
We have a great end-to-end business in the UK. And as an AGC operator, we have almost 250 locations in total, with over 14,000 machines and over 1,500 staff.
CI: Does being in so many markets not dilute what we formerly thought of as ‘core’ NOVOMATIC product?
ZM: When we started out in 2008 we had a very small share of the casino slots market here, at the time probably under 10%. We now have a much higher share, probably in excess of 50%. We have a significant quantity of B1 slot machines in the market and have also taken back the distribution of the NOVO LINE NOVO Unity II electronic live gaming product from the previous distributor; we have actually put many of those out since we took back distribution. In terms of casino market share, with ELGs and B1 slots, we have in excess of 50% market share and continue to innovate heavily in terms of games, cabinets and we like to think that we will be very well positioned should there be an uplift in slots allocation for UK casinos.
CI: What has been the driver behind the recent growth in slots?
ZM: We came into the market with the Coolfire II powered GAMINATOR machine with a new suite of games – we put it out on test and it performed very well. It was a quantum leap in terms of product, and we had some loyal players. We built the player base over a few years, and then the Super-V GAMINATOR very quickly grew a solid player base. As a result, we sold many more machines, then launched the slightly larger versions of the cabinet and moved to the NOVO LINE platform. The old games stayed on board but were upgraded to HD, as well as some new games, plus we launched the downloadable network solution aServe that includes a superb reporting module with an entire estate performance shown in real-time. We now have over 1,000 machines networked to aServe in casinos, which is one-third of all B1 machines in the UK.
CI: Historically the UK is very open to adopting new technology and it’s relatively easy to do a large-scale deployment in a small country, does that help you to innovate?
ZM: The casino space has been a great success for us and we like the UK because customers here, the big casino groups and the smaller operators, are – despite being restricted by the number of slots they are allowed – really keen to find points of differentiation, to try new technology, to make the most of what they have and be innovative. It’s forward-thinking customers like Grosvenor and Aspers who encourage us to bring something new to the offer that we have; we do signage, can help with the look of the floors, create zones, different cabinets… Customers like that because rather than just buying a standalone piece of kit, going forward you have access to the evolving library of NOVOMATIC games. It’s like future-proofing the piece of hardware, and with aServe, a new game is added every month so there is a steady stream. We can fix devices remotely with our network, and if we can’t, we can diagnose and assist a technician to fix it. It’s a collaborative effort and we have a wonderful team, from the technicians and software support right through to head office in Austria.
CI: NOVOMATIC’s acquisition of Ainsworth may also be a masterstroke…
ZM: Astra Games is now the distribution arm for Ainsworth gaming machines into Europe. Ainsworth will be a wonderful opportunity for NOVOMATIC as a group and both companies will benefit tremendously from that acquisition; right now, we are going through regulatory checks and balances, and we hope everything should be over the line by the end of the year when we will become majority shareholders.
Ainsworth UK has been absorbed into Astra, along with the exclusive rights to distribute their products into Europe. Further down the track, we will be the majority shareholder so will be able to fully benefit from the synergies between both companies.
CI: So the Ainsworth brand will continue to exist?
ZM: Yes. In terms of expansion into AGCs, it gives more product range, it gives our customers more variety. The industry’s needs develop and evolve, and needs rarely simplify, they become more involved. People want fresh experiences, look at the multigame sector, look at aServe delivering a new game every month. aServe has found its way into the Netherlands now, we will see that product succeed wherever the market has a need for it. I don’t think you can ever have too much product. Everything we do is always well thought-out, it’s always focused in a specific area. It’s not a case of doing a load of product and hoping for the best, there is a tremendous amount of thought that goes into the design and development of everything that we do – especially when you are targeting a space you have not been in before. Even when you are defending your position as market leader, you still have to consistently innovate. It’s obvious really, you have to be the person bringing something new to the table, new concepts and designs and not just for the sake of it, but because that’s what delights the players who are ultimately our customers.
CI: Everything seems poised for a golden future for NOVOMATIC UK then!
ZM: We are very pleased with our UK business. It’s a great business, and we have been able to apply the duality of manufacturing and operating, and done so successfully and a meaningful way in terms of scale. That bodes well for us in the future. Over the past few years we have built a solid UK base, and we can now focus on organic growth.