Q&A: Per Hellberg on Catena Media's pivot away from M&A and stripping back the brands

There were no clues Catena Media would transform so significantly when Per Hellberg took the reins as CEO from his predecessor Henrik Persson Ekdahl in June of last year.

Hellberg’s appointment was confirmed in March 2018 and in the eight months prior Catena had reported a H1 revenue increase of 78%, listed on the Nasdaq Stockholm and tied up a tornado of rapid-fire acquisitions, including PokerScout in New Jersey and Paris Sportifs in France.

Fast forward to Q1 2019 and the Malta-headquartered affiliate missed its Q1 revenue targets after reporting just a 9% increase in first quarter revenue and a 7% decrease in NDCs.

Catena Media was forced to push its €100m EBITDA target back to 2021 after citing struggles in Sweden’s re-regulated market and acquisitions have also been placed on the backburner for now. It seems a lot can happen in a year.

Below, former Nordic Gaming Group boss Hellberg offers his views on whether Catena Media’s previous growth strategy was unsustainable, making the best of the assets you already own and how US legislation will be a gamechanger for the Malta-based firm.

Catena Media CEO Per Hellberg

EGR Marketing: How has your first year as Catena Media CEO been?

Per Hellberg (PH): It has flown by and it has been a very interesting year. Luckily, I knew the industry from my time as CEO of Nordic Gaming Group. A lot of things have changed since then and we now operate in a larger geographical area than the Nordics. There are a lot of regulations happening all the time that we need to adapt to but that is not specific to us, it affects the entire industry.

We have had to adapt to things that are happening very fast in each market and we have also started to change the company into a more efficient business. It is a different business we are building today than Catena has been in the past. We have huge scale and we need to adapt to continue to be a leader. We’ve had lots of work to do but all good stuff.

EGR Marketing: What are the key changes compared to how the business was run before?

PH: This company has been built by acquiring a lot of affiliates and incorporating them into our structure. It was a very nice way of growing quarter-on-quarter but it built up big debts. You can do that forever but the money you need would keep getting bigger. At some point we had to ask, what kind of business do we want to be? Do we want to be a business that just acquires to inspire growth, or do we want to establish good products and take those to more continents to increase our presence that way? We have chosen the latter.

EGR Marketing: Did you know this change was going to occur before you were appointed?

PH: Not really. But there were a lot of things we didn’t know. We didn’t know there were a lot of regulatory changes about to happen and we didn’t expect the global financial market to have a lower valuation today than it did a year ago. You need to think about ROI all the time, and the more you spend, the larger that return will be. But the logic remains that if you buy good stuff, you need to keep investing in it so it can grow, otherwise it will not pay back the money that was spent.

EGR Marketing: Will a major change be a focus on fewer brands?

PH: I am not saying that we are going to have just one brand, but we are certainly going to focus on the core settled brands. What also became more apparent due to regulation is that you need much greater compliance procedures. It is much easier to get efficiencies of scale if we are ensuring full compliance on 10 sites, rather than trying to monitor 100 of them. With our brand portfolio and footprint, we have exactly what we need to execute on the new strategy. We just needed to change the way we worked. It takes a different skillset to grow assets to become larger. It is an interesting journey for people to be part of. You start with assets, you need to create a working environment in which they can grow and grow them faster than competitors. It is a nice experience, but it takes time to change a company from the old to the new.

EGR Marketing: How will a renewed focus on Catena’s strongest brands work?

PH: You need to look at the consumers of each type of product. If you look at casino, we know there are many different personas out there so you can’t condense everything into one brand. Our AskGamblers brand is closest to catering for everyone but if you want pure search-based acquisition, you need enough brands to provide what the searchers are looking for. What I want to avoid is having 10 brands that do exactly the same thing.

EGR Marketing: Is M&A a dead strategy for Catena now?

PH: I am not saying we should not acquire but we should only acquire when we believe we can handle it, and that it will add more to the business than we can create by ourselves.

EGR Marketing: Is it fair to say that Catena Media’s previous approach simply wasn’t sustainable?

PH: In theory, perhaps, but we also must remember that the larger you grow, the more people you have in more destinations. You see the US picture where we have a lot of assets and if we invest there, we will probably get a far bigger pay off eventually than from any acquisitions. We could continue going for acquisitions, but we would rather focus on what we already have. That assessment is something we always need to do. If you sit with something in your hand, how can you make that more valuable? We should do that instead of thinking something else would be better.

The company was nearly five years old when I joined and it was still the same thinking from induction. We had to ask whether more acquisitions would be the way to maximise shareholder return in five years’ time. We thought the best way would be to create value by ourselves and that was quite an easy choice. I don’t want to say that it was not sustainable. I think at the time it was very wise because they created a fantastic company in terms of margins. But things change and we need to change with them.

The Catena Media business model

EGR Marketing: What have you found the most challenging in Sweden’s new market?

PH: The largest and most difficult thing is to try to understand how the business is going to perform going forwards because it is a market still trying to find itself in a new situation. Lots of people are trying different things and because of that there is not one logical way to move forwards. Our result was heavily dependent on rev share in casino and that was hit. A lot of operators offered bonuses and that was further hit. I think part of it is good. Consolidation in the end aims to give the consumer a better experience. But a lot of ways of doing this limit the marketing that the affiliates can send out. The reprogramming from old to new, the steps we need to take and the time it will take to get there is the difficult thing for us.

EGR Marketing: Was Sweden behind Catena Media’s missed Q1 revenue target?

PH: Yes. Sweden was by far the largest reason. We are also rebuilding the set of casino products that we have for the future, where the performance hasn’t been fantastic. We always want to be fantastic so there are a lot of things we need to do. We didn’t have these resources before because all of them were being used on the assets we had acquired.

EGR Marketing: Are you confident you will reach €100m of EBITDA in 2021 after the target was pushed back a year?

PH: That target has been around for a while. We would have had to increase our debt levels by another €100m. In general, I am not a big fan of making long-term financial targets, especially in an industry like this that is changing all the time. EBITDA is not the best kind of target either because I can acquire €50m of EBITDA two days before the end of 2021 and add a lot of debt to the company. I would hit the target but that would not be good for shareholders. I will reiterate what we said at our Capital Markets Day. I am quite confident we can hit it but it depends on the roll-out in the US, which I cannot control. If we have 10 states rolling out quickly, then we will have a big boost in revenues and can achieve the target quickly. Today, New Jersey by itself is generating 10% of our total revenue. If the states talking about it actually regulate, our business will become almost six times larger than it is today. It would have a massive impact for us. There will be substantial growth potential for our business.

EGR Marketing: Are you happy with the way legislation is progressing in the US or are you lobbying regulators to push things along?

PH: We are doing a lot of lobbying, mostly to educate different states and governors on what works and what doesn’t. A lot of people over there are still trying to decide whether they do casino or sports, or both, or go online or offline. But not going online in the long-term is not a solution because online gambling already exists but it’s illegal. If the state does not push through a bill, online gambling will still happen. A benefit is the figures from New Jersey because regulators can assess how the tax rate is being paid. If they implement legislation, they will have a good tax income and control the businesses in a good manner. Only reputable operators are allowed, meaning that everything to do with legalised betting is better than what is already going on in the States today. We make sure our products are prepared and ready to go live when the state opens up. We have 28 people working full-time in the US to make sure that we are prepared for any roll outs.