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EG7 Acquires Daybreak Game Company For $300m

M&A | ANNOUNCEMENT DATE: 01 DEC 2020
WRITTEN BY | 04 Dec 2020
EG7 Acquires Daybreak Game Company For $300m
M&A
25 NOV 2020
EG7 Acquires Piranha Games For Up To $73m
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💵 Acquisition

  • Stockholm-based multiplatform games developer and publisher Enad Global 7 AB (ST: EG7) has entered into an agreement to acquire 100% of San Diego-based massively multiplayer online games developer and publisher Daybreak Game Company for up to $300m of cash and newly issued EG7 shares, including:

    • $260m of an up-front consideration, of which $160m paid in cash and $100m paid in shares

    • $40m of differed consideration paid in cash, upon the finalization of the Company’s financial statements for 2020FY

  • To complete the Transaction Enad Global 7 has raised funding via debt financing and directed share issue, including a $47m revolving credit facility with a tenor of 3 years and a $58.8m term loan facility with a tenor of 12 months. Also, the company is planning to raise $188.3m via issuing new EG7 shares directed to Swedish and international investors

  • The deal is expected to close by the end of the 2020 calendar year. As a result, EG7 will get all the IPs that Daybreak Game Company currently owns, including third-party ones, while the entire team of Daybreak Game Company will be employed by EG7

  • The main owner of Daybreak Game Company Jason Epstein will get about 10 percent of the total number of outstanding shares and votes in EG7, while other additional current shareholders of the company will together hold approximately 3 percent

  • For the 12-month period ending on 30 September, 2020 Daybreak Game Company’s net revenue was $77.6m, while its adjusted EBITDA was $29m

🧩 Strategic Rationale

  • With the acquisition, EG7 will get a stable cash flow from free-to-play models with loyal communities of Daybreak Game Company’s IPs, which will further EG7’s size and profitability

  • More than that, the acquisition looks like a merger of two companies, that are very much alike not only in terms of product and focus, but also when it comes to financial performance:

    • ~$78m Sales YTD of EG7 vs ~$79m Sales YTD of Daybreak

    • ~ $18.5m EBITDA YTD of EG7 vs ~29m EBITDA YTD of Daybreak

  • Thus, EG7 continues its shift from marketing, significantly increasing the share of games in its business in terms of revenue and EBITDA. The company more than doubled its financial pro forma with the latest acquisitions of Big Blue Bubble, Piranha Games, and Daybreak

Data Source: EG7 Investor Presentation December 2020

🎲 Products

  • Daybreak Game Company is a PC/console massively multiplayer free-to-play online games developer and publisher, that owns a number of IPs:

    • H1Z1, EverQuest series, and PlanetSide 2 are the company’s original IPs

    • DC Universe Online, The Lord of the Rings Online, and Dungeons & Dragons Online are the third-party IPs, that the company possesses

  • The company is planning to upgrade DC Universe Online by enhancing its visuals and adding content update for next-gen consoles by Q4’21. Visual and technical upgrades for next-gen consoles are also planned for The Lord of the Rings Online by 2022, as Daybreak Game Studios aims to capitalize on future Amazons LOTR series

  • Daybreak games have a total of approximately 178 million registered users

  • In August 2020, the company acquired California-based PC/console game developer Cold Iron Studios, which is currently working on a new action shooter based on the Alien Universe

  • Everquest series and DC Universe Online together generate 64% of the YTD bookings and 71% of YTD EBITDA as of September 30, 2020, while The Lord of The Rings Online, which is expecting a large update by 2022, generated 14% and 15% respectively

Data Source: EG7 Investor Presentation December 2020

*Based on YTD bookings and EBITDA as of 30 September, 2020

💸 EG7’S Latest Acquisitions

  • In November 2020, EG7 has entered into an agreement to acquire Piranha Games for a total consideration of $73m, including:

    • $24.2m of an up-front consideration, of which $8.1m paid in shares, and $16.1m paid in cash. 50% of shares will be held back and will be paid over a period of twelve months, subject to achieving specific conditions.

    • up to $48.8m of an earn-out during the period of 2021—2025, with 50% paid in cash in EG7 shares

  • In August 2020, Enad Global 7 entered into an agreement to acquire Canadian mobile game developer Big Blue Bubble for a total purchase price of up to $58m. The acquisition wascompleted on November 25,2020

  • In December 2019, EG7 acquired Sold Out Sales & Marketing Limited, a London-based video game publisher and distributor of PC/console games, for a total consideration of $26.9m

  • In June 2019, EG7 acquired 100% of shares in British game development FPS-focused studio Antimatter Games for around $170k with $400k cash balance

  • In June 2019, EG7 acquired 100% of US-based creative marketing agency Petrol Advertising for up to $23m

  • In June 2018, EG7 acquired Norwegian game development studio ARTPLANT AS for up to $120k upfront, with an earn-out consideration of ~465k shares

🧩EG7 Financial Performance

  • According to Enad Global Interim Report, in the third quarter of 2020, the company generated about $14.2m of the total revenue ($17m if BigBlueBubble is included) and approximately $2.7m of EBITDA ($3.8m if BigBlueBubble is included)

  • During the period of Q1—Q3 2020 EG7 generated about $155.6m revenue and $48.4m EBITDA including the recent acquisitions of BigBlueBubble and Piranha Games

  • During the 12-month period ending on September 30, 2020, EG7 generated $79.7m of the total revenue and $11.3m of EBITDA (both indexes include BigBlueBubble)

EG7 stock.jpg

SOURCES: ENADGLOBAL7

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M&A
Enad Global 7 (Formerly Toadman Interactive)
Daybreak Game Company
  • Established in 1997 as Sony Online Entertainment

  • Headquarters — San Diego, California, United States

  • Team of 301 employees

  • In 2015, spun off to Columbus Nova managing partner Jason Epstein

  • Multiplatform publisher and developer of large-scale MMOs

  • In January 2020, the company established three new studios: > Dimensional Ink Games > Darkpaw Games > Rogue Planet Games

  • In August 2020, the company acquired Cold Iron Studios