Scale Up and Find Synergies: Survival Tips for the Cash-Loaded

Nazara’s Board of Directors. 1. Vikash Mittersain, 2. Nitish Mittersain, 3. Sasha Mirchandani, 4. Shobha Jagtiani, 5. Probir Roy, 6. Kuldeep Jain, and 7. Rajiv Ambrish Agarwal. Image: Nazara Technologies Annual report for FY24.

Retrospective GST Dispute 

Nazara recently received a ₹845.7 crore ($101.5 million) interim relief from the Kolkata High Court. The case is part of the ongoing retrospective taxation crisis, which has reached the Supreme Court.

The case concerns less than 2% of the tech giant’s business. Nevertheless, the amount involved is strikingly similar to the money Nazara just paid to acquire a near-majority stake in one of its biggest competitors.

Nazara Technologies and Delta Corp are India’s only publicly listed companies from the gaming sector. Nazara has exposure to online offerings of skill games, including fantasy sports and rummy. Delta operates casino games, roulette, blackjack, and slots from brick-and-mortar establishments, including luxury ships.

Last year, on 1 October 2023, the business climate for operators of money games in India abruptly changed. The effective GST burden hiked multifold from 18% on trade margins to 28% on full bet value. A spirit of “save your market share at all costs” abruptly prevailed in board meetings.

The gaming unicorns reacted on the spot and absorbed the GST shock by offering discounts to players. Soon, the whole sector engaged in discount competitions and saw their margins depleted.

Nazara joined this peculiar war of attrition by doing more of what it does best – buying out competitors. The company quickly amassed a ₹1500 crore ($180 million) war chest and was even quicker in spending it.

Now, a portion of the invested money is already getting ready to drip down to regular consumers. PokerBaazi’s WPT India Online Series starts on 8 December 2024 with a prize fund of ₹35 crores ($4.2 million).

The event will elevate Indian online poker to the global scene with the first-ever cooperation with the World Poker Tour.

Ready, Set, Go!

Nazara ushered into the year 2024 ready to put the ₹1500 crores of raised capital and cash reserves to good use. The money was garnered through several fundraisers, including issuing preferential shares worth up to ₹250 ($30 million) crore in January.

“With our consolidated cash reserves now exceeding Rs 1500 crores. Nazara is exceptionally well-positioned to pursue both organic growth and strategic acquisitions,” CEO and founder Nitish Mittersain said.

“In India, we’ll look at developers with early-stage IP.” Globally, “we’ll look at developers with more scaled-up IP, strong profitability, and cash flow,” Mittersain explained in another interview.

“Our idea is to acquire companies with established gaming IP and then scale it up. We’ve identified many opportunities and are meeting companies actively to see acquisition opportunities,” he added.

In July, the company received recognition among the World’s Top 10 Strategic buyers. The achievement came after the company spent $42.6 million (₹356.8 crore) on three acquisitions. The figure was slightly less than a quarter of its allocated Mergers & Acquisitions budget.

“This is extremely encouraging as Nazara is set for more international acquisitions in 2024. We are honored to be recognized on the global stage,” Mittersain commented after accepting the honors.

The purchases included a venture with a Teen Patti game through its subsidiary Next Wave Multimedia. In April, Nazara announced a deal to acquire the IP rights over Ultimate Teen Patti from Games24x7. The price of the transaction was ₹10 crore ($1.2 million).

Nazara’s Acquisition Spree Reaches Games24x7’s Parent Company

In September this year, the news broke that Nazara was staking two-thirds of its war chest on a single bid. The target was an Indian business, but it hardly matched the “early stage developer” profile. Nazara was buying PokerBaazi’s parent company, Moonshine Technology.

Not only that, but Nazara had agreed to pay ₹982 crore ($117.8 million) for a 47.7% ownership. Without a majority stake, revenues from the new massive acquisition would not enter Nazara’s consolidated report.

The deal was completed by the end of September, with a payment of ₹150 crore ($18 million). An allotment letter confirmed that Nazara had subscribed to 2.87 lakh compulsorily convertible cumulative preference shares of Moonshine.

The first part of the transaction involved a consideration of ₹831.5 crore ($99.8 million) going to existing shareholders. The group of sellers included Moonshine’s founder, Navkiran Singh, and marquee names like Puneet Singh, Varun Ganjoo, and Avneet Rana.

After the announcement, Nitish Mittersain highly rated Poker Baazi. He pointed out that the platform had set new standards in online poker gaming and user engagement in India.

“This investment in Moonshine Technology represents a significant step in our journey to strengthen Nazara’s position as India’s dominant diversified gaming platform,” Mittersain added enthusiastically.

What Are Nazara’s Goals Behind the Strategic Acquisition

Nazara will not rush to force synergies between its existing business and the new acquisition. Instead, it plans to support and scale the new business for the next couple of years. Synergies will come softly along the way, Mittersain revealed in a TV interview.

“I think there are a lot of synergies. It is a consumer-facing product. We already spend a lot of time in marketing and a lot of ad dollars. So, there could be economics of scale. Our e-Sports division is very strong. So our team has worked out several synergies,” Nazara’s founder explained.

Gaming is Nazara’s core business, and the company will continue to grow in this segment. Acquisitions will continue, and gaming will preserve its role as a key “high-margin driver and cash flow driver” in the following years.

“So from a Nazara perspective, we are going to continue to focus very strongly on core gaming,” Mittersain told the interviewers.

“And again, it’s a business with very strong tailwinds, because that is what the youth wants today and we will continue to dominate that space and grow in the next two, or three years,” he concluded.