then-financial controller, Anthony Guter, the games were of poor quality and not suited to arcade-style play. Guter noted that while those within Mastertronic who played games were aware of the difference in style between arcade and home games, the directors in charge of the company were not. According to Guter, Arcadia's failure nearly bankrupted the company. Merger with Virgin Having bought Melbourne House and with heavy financial commitments to the Arcadia project Mastertronic (now renamed the 'Mastertronic Group Ltd') was now suffering severe cash flow problems. Virgin stepped in and purchased the 45% of shares held by the outside investment group. The remaining 55% was held by Alper (25%), Herman (20%) and Sharam (10%) until 1988 when they sold out in a highly complex deal which required their continuing involvement in the business and achievement of profit and cash flow targets. The merger created Virgin Mastertronic although the company would continue to publish titles under the Mastertronic, Melbourne House and Virgin Games labels for several more years. It was Frank Herman who, in early 1987, spotted that Sega had no UK distributor for the Master System range. Mastertronic sold all they could get that year and were then appointed as distributors in France and Germany as well, and thus Sega Europe was born. Sega takeover Soon after the completion of the merger all the marketing effort went into full-price games under the Melbourne House label and it was clear that the budget side was sliding into oblivion, the competition had become intense as everyone was recycling their old full-price games as budget games. In addition, the children who used to buy 8-bit computers were now buying Sega and Nintendo consoles. Sega sales were booming so much that nobody really cared about the traditional Mastertronic business. Although staff recruitment actually rose, this was all for the Sega operations. By 1991 nearly all the company's turnover, and certainly all the profit, came from Sega-related business. As a result, nearly all the staff moved over to Sega when they took over the business from Virgin and only a handful of game programmers stayed with the publishing side (quickly renamed Virgin Interactive Entertainment). After the Sega takeover Frank became deputy Managing Director of Sega Europe and Alan was Managing Director of Sega UK. Martin left the UK and became a resident in the US. Influence on the industry Compared to its main competitors, Mastertronic