Jam City merges with SPAC to go public at $1.2B and acquires Ludia for $175m

? The announced transactions

• US-based mobile games developer and publisher Jam City (formerly known as Social Gaming Network) has announced its ongoing merger with DPCM Capital. Some of the cash proceeds will be used to acquire a Canadian mobile games studio Ludia for $175m. These transactions will value the combined company at $1.2B post-money enterprise value.
• DPCM is a special purpose acquisition company listed on the NYSE with $300m cash held in trust. Concurrent with the merger, DPCM Capital and Jam City will raise $100m through PIPE, of which $36m is committed by Netmarble and $3m by DPCM.
• Part of the cash proceeds will be used to cover the expenses of the transaction and pay a cash merger consideration to Austin Ventures ($88m), which initially invested in Jam City in 2010 (approx. $28m).
• After the deal is closed, the combined company of DPCM, Jam City, and Ludia will have approximately $115m of cash on its balance sheet. The funds will be used to accelerate the growth via future M&As and other strategic development initiatives.
• Upon closing of the transaction, Netmarble will remain a controlling shareholder of the combined company with super-voting rights and majority voting control.

? Story Behind

• The announced transaction is the third time we hear about the company going public.
• Jam City was planning to go public via IPO in the second half of 2017. Back then, the company was said to generate $400m annual revenue. It had already acquired Fat Rascal, Kiwi, and TinyCo, using its $130m investment from Netmarble received in 2015. However, by the end of 2017, the announced IPO was postponed to 2019. After that, there were some rumors about Jam City gearing up for the IPO, but they never came true until the current announcement.
• Since 2017, Jam City improved its financial performance and acquired two more studios: Brainz and 231 Play. The company has also diversified its portfolio with several new titles and launched one more hit game Harry Potter: Hogwarts Mystery. Today, no single game contributes over 20% of total Bookings’20 with 53% coming from licensed IPs. Choosing the right time is another important thing to consider when going public, and 2021 seems to be one of the best years.

? Consolidated financial performance

• In 2020, Jam City and Ludia together generated $570m Bookings, compared to $471m in 2019. The combined company expects 23% Bookings CAGR 2019-2022E and plans to surpass $860m Bookings in 2023. In 2020, the company reported $33m of Adjusted EBITDA, which is 35% less than in 2019 ($51m). Assuming 30% Adj.EBITDA CAGR 2019-2022E, the company forecasts to reach $112m Adj. EBITDA by the end of 2022.
• Historically the Adj. EBITDA margin accounts for 6%-11% and is below the industry average level because of the lower margins from third-party IPs (that constitute 53% of total Bookings’20). For comparison, in 2020, Playtika showed 39.7% Adj. EBITDA Margin, while AppLovin reported 24%, demonstrating an outperforming revenue growth. The expected 2x increase in Adj. EBITDA
• Based on $1.2B combined enterprise, the implied trading multiples are:

• Compared to the average in the industry, the multiples seem high on adj. EBITDA’21 (12.5x EV/EBITDA’21 for Playtika and 16.9x for Zynga. Source: S&P Capital IQ).

? Ludia’s acquisition

• Founded in 2006, Ludia (former Newplay Corporation) is a Canada-based mobile games developer, best known for third-party licensed games, based on Dungeons & Dragons, Jurassic World, Dragons, and some of the main Disney franchises.
• The company also develops its original games, including dating app simulator Lovelink and visual role-playing novel
  What’s Your Story?.
• The third-party IPs-based portfolio appears to be a great fit for Jam City’s established portfolio of licensed games. Based on Ludia’s Q4’20 Bookings of $18.9m, the acquisition multiple is 2.3x EV/Bookings

? Jam City’s financing rounds

• Since its inception in 2010 Jam City has raised over $300m with major rounds being:
  • In January 2019, Jam City has raised $145m from JPMorgan Chase Bank, Bank of America Merrill Lynch, and a syndicate of lenders, including Silicon Valley Bank, SunTrust Bank, and CIT Bank, N.A.
  • In July 2015, the company received a $130m investment from Korean gaming company Netmarble
  • In March 2010, Jam City raised its first $28m investment from Austin Ventures

?Jam City’s previous M&As

• In April 2019, Jam City acquired mobile casual games developer 231 Play for an undisclosed sum
• In March 2018, the company acquired US-based Brainz, a developer behind action strategy game World War Doh
• In July 2016, the company acquired US-based developer TinyCo, known for such licensed games as Marvel Avengers Academy and Family Guy: The Quest for Stuff titles
• In December 2015, Jam City acquired two US-based gaming studios: Fat Rascal and Kiwi.

Written by Andrei Zubov

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