? Acquisition
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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.
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The maximum cash consideration accounts for approximately HK$11,607m (or ~$1.498B) with equity value of HK$10,249m (~1.322B)
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The consideration is to be paid entirely with cash from Tencent’s internal cash resources
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Leyou will become wholly-owned by Tencent and complete the withdrawal of listing of the shares
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The deal is subjected to approval by various authorities
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The cancellation price represents a premium of approximately 30.27% over the Leyou’s unaffected closing price per share on 19 September 2019
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The shareholders structure before the acquisition was:
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Port New and Novel New (wholly-owned by Mr. Yuk Kwok Cheung Charles) — 52.31%
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LaGuardia (wholly controlled by Alpha Frontier) — 16.81%
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Mr. Li Yang — 0.09%
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Public shareholders — 30.79%
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The valuation multiples based on interim results ended 30 June 2020 are EV/Rev 7.0x and EV/adj EBITDA 16.0x
? Financial Performance
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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
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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
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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
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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
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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
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The game is developed and published by Leyou’s subsidiary Digital Extremes (first launched in 2013)
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In the first half of 2020, Warframe saw a 15.5% growth of registered players
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The company owns several game studios: Among them are Digital Extremes, Splash Damage, Kingmaker and Radiance Games
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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
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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
