16/01/2021, 15:03 CET/CEST: Correction of a release from 16/01/2021, 00:26 CET/CEST– Media and Games Invest entered into an agreement to acquire KingsIsle Entertainment Inc. for USD 126m plus earn-outs. In this context, Oaktree is subscribing for a EUR 25m share issue.
January 16, 2021 – Media and Games Invest (“MGI” or the “Company“, ISIN: MT0000580101; Ticker M8G; Nasdaq First North Premier Growth Market and Scale Segment Frankfurt Stock Exchange), has yesterday at 23:45 CET entered into an agreement with the shareholders of KingsIsle Entertainment Inc. (“KingsIsle“) to acquire 100 percent of the shares of KingsIsle (the “Transaction“) for a fixed cash consideration 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 payment (the “Earn-Out Consideration“), dependent on the level of future revenues. All consideration shall be paid in cash. KingsIsle, based in Austin, Texas, is a leading game developer and publisher of the Online PC Games Wizard101 and Pirates 101 which have very loyal communities. 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 discount of 4% on the average closing share price on Xetra of the last twenty trading days. The share issue is directed to funds advised by Oaktree Capital Management and will generate proceeds of EUR 25 million.
The Transaction is transformative for MGI as it is expected to materially increase the size and profitability. Given the stable revenues and high EBITDA margin that the successful game Wizard101 generates, it will further strengthen the quality of earnings in the digital games segment.
On a proforma basis MGI’s EBITDA would have been increased by app. 60 percent as a result of the acquisition for the first nine month of 2020. MGI Group generated EUR 19 million and KingsIsle EUR 12 million of adjusted EBITDA during the first nine months 2020. 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.
Pro Forma Financials Jan – Sep 2020 (unaudited)
|mEUR||MGI Group (IFRS)||KingsIsle (US Gaap)1||Combined
|adj. EBITDA Margin||21%||66%||28%|
Note (1): Carve out of mobile business not related to Wizard and Pirate 101 and adjusted to pre Covid MMO revenue growth rates from 2019 applied for Jan – Sep 2020 while full operating expenses from the MMO business of 2020 have been included. Note (2) Numbers may not add up due to rounding
- The Transaction is in line with MGI’s defined strategy of seeking highly accretive acquisitions which will strengthen the long term profitability and help to create a stronger position in online PC and mobile games.
- FY 2021 revenue guidance for KingsIsle comprises expected revenues of EUR 25 million (“Revenue Guidance“) and an expected adjusted EBITDA of EUR 17 million (the “EBITDA Guidance“). The resulting 68 percent EBITDA margin is expected to be achieved by combining the attractive size of the games with MGI’s highly efficient cost structure.
- MGI’s combined group EBITDA margin grows on a pro forma Jan – Sep 2020 basis from 21 percent to 28 percent post the Transaction. Given the strong track record of Wizard101, we expect to generate higher & more stable cash flows from the free-to-play model with the loyal communities for existing IPs.
- 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 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 may increase to a range of 5.8x – 7.3x of the EBITDA Guidance. This assessment is based on 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 is at the upper end of the stated target range of 2-3x, while the lower end is planned to be reached 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 totalling $126 million and three earn out levels which could result in $84 million of additional payments:
Closing Consideration Payment
- USD 63 million will be paid at the closing of the Transaction
Deferred Consideration Payments
- USD 25,2 million will be paid in cash on or before 30 June 2021,
- USD 12,6 million will be paid in cash on or before 31 December 2021 and
- USD 25.2 million will be paid in cash on or before 30 June 2022
Earn Out Consideration Payments
- USD 10 million if the full year gross revenues in 2021 ranges between USD 30 million and USD 35 million, in cash payable until 31 March 2022.
- USD 32 million if the full year gross revenues in 2021 is more than USD 35 million, in cash payable until 30 June 2022.
- USD 42 million if the full year gross revenues in 2021 exceeds USD 55 million, in cash payable on 31 December 2022.
- EUR 25 million (app. USD 31 million) of the Consideration paid at closing (USD 63 million) will be paid from proceeds received from Oaktree in exchange for the issuance of 11,676,241 new ordinary MGI shares at a price EUR 2.14 which corresponds to a discount of 4% on the average closing share price on Xetra of the last twenty trading days. Oaktree will hold post capital increase approximately 10 percent of the MGI shares on a fully diluted basis (In the previous ad-hoc notification published on January 16, 2021, 00:26 CET, the number of shares, and the respective share price were not reported correctly). Oaktree has signed a six month lock-up agreement and typcially holds investments for 3 to 5 years. The share issue has been resolved by the Board of Directors on the basis of the authorization of the Extraordinary General Meeting on 25 July 2019 and under exclusion of pre-emptive rights.
- The fixed Deferred Consideration of USD 63 million will be paid over the coming 18 months using liquidity and cash flow of the MGI Group.
- In order to bridge the time between the capital increase in cash with Oaktree and the new share issue, Remco Westermann, through his investment vehicle Bodhivas GmbH, will deliver 11,676,241 million shares by way of a shareloan to Oaktree and will receive the same number of shares back after the new share issue.
- Closing of the transaction is expected for 25.01.2021.
As described above, to finance part of the Transaction, MGI agreed with the U.S. investment company Oaktree Capital Management, LP (“Oaktree“) on a directed share issue. Oaktree will become a strategic minority anchor investor of MGI with a multi-year investment horizon.
The reason for the exclusion of the shareholders’ pre-emptive rights is to ensure the most time- and cost-efficient financing of the transaction. Furthermore, the Company found an anchor investor in Oaktree, which is very familiar with MGI and the European games and media industry and supports the management’s goals and strategy of making further strategic investments in the games sector and in the media sector. Following the share issue, Oaktree will hold approximately 10 percent of MGI.
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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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