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.
CONFERENCE CALL FOR INVESTORS, ANALYSTS AND THE MEDIA
Tue, 2021-01-19 - 11:00 CET
Participant dial in number (NOTE: PIN code needed for participants)
SE: +46 856642651
UK: +44 3333000804
US: +1 6319131422
DE: +49 6913803430
Participant Pin code
For further information, please contact:
Chairman of the Board and CEO
+49 40 411 885206
Jenny Rosberg, ROPA, IR contact Stockholm
Axel Mühlhaus / Dr. Sönke Knop, edictor, IR contact Frankfurt
Phone: +49 69 9055 05 51
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.
The Company's certified advisor on Nasdaq First North Premier Growth Market is FNCA Sweden AB; firstname.lastname@example.org, +46-8-528 00 399.
This release does not constitute an offer, or a solicitation of any offer, to buy or subscribe for any securities in MGI in any jurisdiction, neither from MGI nor from someone else.
This release does not constitute or form part of an offer or solicitation to purchase or subscribe for securities in the United States. The securities referred to herein may not be sold in the United States absent registration or an exemption from registration under the US Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold within the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. There is no intention to register any securities referred to herein in the United States or to make a public offering of the securities in the United States. The information in this release may not be announced, published, copied, reproduced or distributed, directly or indirectly, in whole or in part, within or into Unites States, Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, South Africa, South Korea, Switzerland or in any other jurisdiction where such announcement, publication or distribution of the information would not comply with applicable laws and regulations or where such actions are subject to legal restrictions or would require additional registration or other measures than what is required under applicable EU law. Actions taken in violation of this instruction may constitute a crime against applicable securities laws and regulations.
This release contains forward-looking statements that reflect the Company's intentions, beliefs, or current expectations about and targets for the Company's and the group's future results of operations, financial condition, liquidity, performance, prospects, anticipated growth, strategies and opportunities and the markets in which the Company and the group operates. Forward-looking statements are statements that are not historical facts and may be identified by words such as "believe", "expect", "anticipate", "intend", "may", "plan", "estimate", "will", "should", "could", "aim" or "might", or, in each case, their negative, or similar expressions. The forward-looking statements in this release are based upon various assumptions, many of which are based, in turn, upon further assumptions. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurances that they will materialize or prove to be correct. Because these statements are based on assumptions or estimates and are subject to risks and uncertainties, the actual results or outcome could differ materially from those set out in the forward-looking statements as a result of many factors. Such risks, uncertainties, contingencies and other important factors could cause actual events to differ materially from the expectations expressed or implied in this release by such forward-looking statements. The Company does not guarantee that the assumptions underlying the forward-looking statements in this release are free from errors and readers of this release should not place undue reliance on the forward-looking statements in this release. The information, opinions and forward-looking statements that are expressly or implicitly contained herein speak only as of its date and are subject to change without notice. Neither the Company nor anyone else undertake to review, update, confirm or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise in relation to the content of this release, unless it is so required by law or applicable stock exchange rules.
Information to distributors
Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended (“MiFID II”); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the “MiFID II Product Governance Requirements”), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any “manufacturer” (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the shares in MGI have been subject to a product approval process, which has determined that such shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the “Target Market Assessment”). Notwithstanding the Target Market Assessment, Distributors should note that: the price of the shares in MGI may decline and investors could lose all or part of their investment; the shares in MGI offer no guaranteed income and no capital protection; and an investment in the shares in MGI is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Directed Share Issue.
For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the shares in MGI.
Each distributor is responsible for undertaking its own target market assessment in respect of the shares in MGI and determining appropriate distribution channels.