Media and Games Invest signs agreement to acquire the award-winning US game developer KingsIsle adding about 60% Group EBITDA. To enable the transaction a EUR 25 million capital increase was committed by Oaktree Capital, holding about 9% of the MGI shares.
- The transaction is transformative for MGI as it will materially increase the size and profitability of MGI Group, adding about 60% Group EBITDA on a pro forma basis (YTD Q3 2020)
- KingsIsle’s Revenue Guidance for 2021 is USD 32 million with an expected adjusted EBITDA of USD 21 million which represents a strong EBITDA Margin of 68%
- The fixed purchase price is USD 126 million plus up to USD 84 million in earn-outs which represents an EV/EBITDA multiple of 6.0x for the fixed component
- Oaktree Capital becomes an about 9% minority anchor investor in MGI, with an investment horizon of 3 to 5 years, participating in the transaction through a EUR 25 million capital increase
- The KingsIsle transaction is a further step of MGI’s buy-and-build strategy which is now also gearing towards larger and EBITDA-positive targets
Media and Games Invest ("MGI" or the "Company", ISIN: MT0000580101; ticker M8G; Nasdaq First North Premier Growth Market and Scale Segment Frankfurt Stock Exchange), entered into an agreement with the shareholders of KingsIsle Entertainment Inc. ("KingsIsle") to acquire 100 percent of the shares of KingsIsle (the "Transaction"). KingsIsle, based in Austin, Texas, is a leading game developer and publisher. The fully owned Massive-Multiplayer-Games Wizard101 and Pirate101 are having very loyal communities and as such also very sustainable revenues.
The parties have agreed to a fixed purchase price of USD 126 million on a cash-and-debt-free basis (the "Consideration"), plus up to USD 84 million that may be paid to the sellers as earn-out payments (the "Earn-out Payment"), depending on 2021 revenues. All consideration shall be paid in cash. Closing of the Transaction is expected before the end of January 2021.
As part of the Transaction, MGI has resolved on a directed share issue of 11,676,241 new ordinary MGI shares at a price of EUR 2.14 which corresponds to a small discount of 4% on the average closing share price on Xetra during the last twenty trading days. The share issue will be signed by funds advised by Oaktree Capital Management and will generate proceeds of EUR 25 million.
This further acquisition of MGI Group is based on its buy-and-build strategy, which has performed well over 30 transactions and the subsequent value-increasing improvements of the acquired assets in the last six years. KingsIsle introduces its two strong games Wizard101 and Pirate101 to MGI´s portfolio of MMO games which both will benefit from the entire value-creation-chain at MGI. With its focus on sustainable long term revenue generating games MGI group has shown an average growth rate of more than 40% yoy within the last 6 years, whereas speed of growth is increasing. MGI focuses next to organic growth also on synergies between its acquisitions and is also via buy and build building a strong media unit to have a USP in user acquisition. Further gaming as well as media acquisitions are lined up as well as several game launches and larger game updates for existing titles.
Pro Forma Financials Jan – Sep 2020 (unaudited)
MGI Group (IFRS)
KingsIsle (US Gaap)1
adj. EBITDA Margin
Note (1): Carve out of mobile business which is not related to Wizard101 and Pirate101 and split off as part of the Transaction and adjusted to pre Covid MMO revenue growth rates from 2019 applied for Jan – Sep 2020 while full operating expenses of the MMO business of 2020 have been included. As such, the adjustments made for KingsIsle include a reduction of actual revenue and EBITDA to eliminate favorable revenue developments related to Covid-19 in the earlier part of 2020. Note (2) Numbers may not add up due to rounding
- The Transaction is in line with MGI's defined strategy of seeking highly value-accretive acquisitions which strengthen its long term profitability and help to strengthen its position in online PC and mobile games.
- FY 2021 revenue guidance for the acquired KingsIsle are expected revenues of USD 32 million (“Revenue Guidance”) and an expected adjusted EBITDA of USD 21 million (the “EBITDA Guidance”), with an expected 68 percent EBITDA margin.
- MGI’s combined group EBITDA margin grows on a pro forma Jan - Sep 2020 basis from 21 percent to 28 percent following the Transaction. Given the strong track record of Wizard101 as well as Pirate101, we expect stable and further increasing cash flows from the free-to-play model with the loyal communities for existing IPs. In course of post-merger integration further cost and revenues synergies will be realized.
- The fixed Cash Consideration of USD 126 million represents an EV/EBITDA multiple of 6.0x based on the EBITDA-Guidance. The Transaction is immediately value-accretive for the MGI shareholders based on this multiple combined with an expected increase of EPS.
- Taking into account the Earn-Out Consideration, the EV/EBITDA multiple will -depending on KingsIsles growth in 2021- be within a range of 5.8x – 7.3x. This assessment is based on higher revenues also generating an increased EBITDA and includes the incremental EBITDA that may occur from a higher revenue base should an earn out become payable.
- Post transaction, the net leverage ratio of MGI will for a short term increase based on the Transaction to the upper end of MGI’s stated target range of 2-3x EBITDA, while the lower end is already planned to be reached again within 12-18 months due to stronger Free-Cashflow generation combined with an increasing EBITDA.
- The Total Consideration on a cash-and-debt-free basis is divided into a fixed component comprising four installments totaling USD 126 million and three earn out levels which could result in USD 84 million of additional payments.
- As part of the Transaction, MGI has agreed to issue 11,676,241 new ordinary MGI shares at a price of EUR 2.14 per share, representing a 4% discount to the average closing share price over the last twenty trading days on Xetra. The new shares will be subscribed by funds advised by Oaktree Capital Management and will issue proceeds of EUR 25 million. Based on the Transaction the total amount of issued MGI shares will increase to 128,749,748 shares. Oaktree Capital Management will hold about 9% of the total amount of shares.
- Out of the total fix consideration of USD 126 million an amount of USD 63 million will be paid at closing, while the remaining USD 63 million will be paid over the coming 18 months using liquidity and cash-flow of the MGI Group.
- Closing of the Transaction is expected before the end of January 2021.
KingsIsle, was founded in 2005 and is a leading U.S. game developer and publisher. It´s flagship title is the Online PC Game Wizard101 while also its second game Pirate101 is doing well. The mobile IP rights of Wizard101 and Pirate101 are included in the Transaction, while further -loss making- mobile activities are excluded from the Transaction and will be continued by one of the founders. The global pandemic and larger game updates positively impacted KingsIsles 2020 revenues and have been normalized to pre-Covid levels within the pro forma financials above for the valuation of the company. Wizard101 as well as Pirate101 currently almost exclusively generate revenues from the North-American market offering material European revenue growth potential to MGI. There will be further growth potential from launching the game on console as well as developing a mobile version for 2022 onwards.
Oaktree Capital Management, LP is a USD 140bn diversified global asset manager. The investment will be held by its European Private Equity Fund which has EUR 1bn available capital. Oaktree has supported many European management teams growing their platform companies into recognized market leaders including the creation and development of multi-billion listed companies. Oaktree has been able to conclude the required share capital increase within a short period of time because of their high degree of familiarity with MGI and the European games & media sector. Oaktree is supportive of management`s plan to perform further accretive strategic investments in the online and mobile games segments. They also support management’s strategy of combining media with games to deliver strong synergies within the group and as such also fully support further accretive acquisitions for the media segment.
Jens Knauber, COO Media and Games Invest
“This transaction is a major step-up for MGI and the largest transaction so far in our company's history. First and foremost, with Wizard101 and Pirate101 we gain a great and award-winning game for our core portfolio of free-to-play online PC games, with very strong and active player bases as well as various organic growth opportunities, like e.g. expanding the games to additional platforms such as console and mobile and further internationalizing the games. I am also particularly pleased that we have been able to gain a strong and long-term oriented partner and shareholder in Oaktree, which is familiar with the industry and as a minority shareholder will support the goals and strategy of the management including focusing on larger acquisitions. This is after having had a very good year 2020, a very good start into the year 2021. We are looking forward to work together with the KingsIsle team as well as to further M&A transactions as well as exiting launches of new games as well as larger updates within our existing portfolio.”
Hermann T. Dambach, MD Oaktree GmbH, Frankfurt
“We are excited to partner with MGI. We view the online games sector as an attractive growth market. MGI has developed a model which allows it to diversify the risks and reduces the dependence on individual games. The ability to acquire successful games, integrate and upgrade them over time leads to attractive, more stable long term income. The track record and growing scale of MGI will allow the company to focus on more midsized companies which will accelerate growth. The recent investment in the various media assets has begun to show attractive margin and revenue expansions which we expect to continue over time. As evident in case of the KingsIsle acquisition, having the media competence in-house has become a decisive asset in growing revenue at comparably low cost”.
Closing of the Transaction is expected for end of January 2021.
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About Media and Games Invest plc
Media and Games Invest plc (MGI), is a fast-growing and profitable company operating in the digital games sector with a strong supportive media unit and a focus on North America & EMEA. The company combines organic growth with value-accretive acquisitions, delivering strong and sustainable earnings growth. Since 2014 the MGI Group has successfully acquired more than 30 companies and assets which are integrated onto our platform, exploiting efficiency-enhancing technologies such as the cloud. The Company’s shares are listed on Nasdaq First North Premier Growth Market in Stockholm and the Scale segment of the Frankfurt Stock Exchange.
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