? Acquisition
Chinese gaming giant Tencent (SEHK: 700) through its wholly-owned subsidiary Image Frame Investment acquires Hong Kong-based game developer and distributor Leyou Technologies (HKG: 01089) for the consideration of around $1.4B.
The maximum cash consideration accounts for approximately HK$11,607m (or ~$1.498B) with equity value of HK$10,249m (~1.322B)
The consideration is to be paid entirely with cash from Tencent’s internal cash resources
Leyou will become wholly-owned by Tencent and complete the withdrawal of listing of the shares
The deal is subjected to approval by various authorities
The cancellation price represents a premium of approximately 30.27% over the Leyou’s unaffected closing price per share on 19 September 2019
The shareholders structure before the acquisition was:
Port New and Novel New (wholly-owned by Mr. Yuk Kwok Cheung Charles) — 52.31%
LaGuardia (wholly controlled by Alpha Frontier) — 16.81%
Mr. Li Yang — 0.09%
Public shareholders — 30.79%
The valuation multiples based on interim results ended 30 June 2020 are EV/Rev 7.0x and EV/adj EBITDA 16.0x
? Financial Performance
In 2019, Leyou reported $214m Revenue (-5.9% YoY growth) and $6.5m Net Loss with EBITDA of $50m, representing a 25.9% year-on-year decrease
Surprisingly, Leyou’s revenue for the first half of 2020 accounted for $90.7m, demonstrating a 14.2% decrease compared to the first half of 2019 ($105.7m). According to the Leyou, the main reasons for such decrease were COVID-19 impact and shutdown of the company’s overseas studios
80%+ of revenue is coming from Canada, and 94% of Revenue — from North America region. Only in 2018, the company has gradually started getting revenue from Chinese market
80%+ of revenue belongs to game development and publishing activities (primarily Warframe), and the rest is presented by work-for-hire division and insignificant marchandise.
? Products
Leyou is best known for Warframe — a F2P science fiction-themed multiplayer shooter available on PC and all major console, which has about 50m registered users
The game is developed and published by Leyou’s subsidiary Digital Extremes (first launched in 2013)
In the first half of 2020, Warframe saw a 15.5% growth of registered players
The company owns several game studios: Among them are Digital Extremes, Splash Damage, Kingmaker and Radiance Games
Leyou’s Splash Damage studio has worked with Microsoft on “Gears Tactics” game, that came out this April on PC and gained generally positive reviews
Currently, Leyou finishes the work on a multiplayer combat game Outcasters, developed specially for Google Stadia. The game is planed to be released this fall
SOURCE: LEYOU
