This article is based on our Weekly News Digest #7 from 19.02.2024. If you want to receive such analyses first, subscribe to our weekly newsletter. There, we analyze the most significant deals, elaborating on the financials and strategy behind them, while also covering the smaller transactions of the week.
US-based web3 metaverse experience company Infinite Reality has acquired US-based tech company Ethereal Engine for $75m. The consideration is paid entirely in shares.
Founded in 2020, Ethereal Engine is the company behind an open-source 3D web engine. It enables developers to construct browser-based games and interactive experiences, incorporating features like voice, video, and expressive avatars for better social interaction.
The acquisition will combine 29 of Ethereal Engine’s employees with 106 people of Infinite Reality. Together, they will keep working on a no-code SaaS platform for brands to create their own experiences with Ethereal Engine implemented into the existing solution of Infinite Reality.
The deal valued Infinite Reality at $2.5B, 35% higher than the $1.85B valuation targeted by the company in Dec’22. Infinite Reality then announced it would go public via SPAC, merging with Newbury Street Acquisition Corporation (Nasdaq: NBST). Though the deal is not yet closed, the new valuation implies that Infinite Reality secured and overperformed the stated valuation. But in reality, the acquisition brought back Infinite Reaity’s valuation secured back in Jul’22 after the $470m acquisition of esports company ReKTGlobal.
Nevertheless, going public in the current market will likely become a great challenge for Infinite Reality. The story of the esports company FaZe Clan is the best demonstration of that. Back in Oct’21, FaZe Clan initially planned to go public via SPAC at $1B, but when the deal was finally closed in Jul’22, the valuation turned out to be $725m. But that was just the beginning. Since going public, the company’s valuation had drastically declined to $15.8m in Oct’23, when GameSquare acquired the company for $18.5m.
This is an exaggerated example, of course, but it highlights the challenges of going public, especially when the market is down. In our latest Global Gaming Deals Activity Report 2023 , we documented the challenges of the public market and IPOs being paused for quite some time.
Still, we are not predicting the fate of FaZe for Infinite Reality. The esports market is one of the most demanding sectors today, and such a decline reflects the challenges of the whole business model. Meanwhile, Infinite Reality focuses on technologies and infrastructure, making the prospects of going public safer.
Though the Platform & Tech segment is also going through a post-pandemic decline, this acquisition makes Q1’24 compatible with the three previous quarters for the sector. Such market decline might be linked to the increasing difficulty of attracting an audience. Nonetheless, the segment is still active, with AI technologies attracting more investors and inspiring new startups.
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