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UPDATE: Tencent Acquires Leyou Technologies For Around $1.4B

WRITTEN BY | 28 Aug 2020
UPDATE: Tencent Acquires Leyou Technologies For Around $1.4B
M&A

💵 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

Source: Leyou financials and press release

📈 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.

Source: Annual report 2019

🎲 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: Yahoo Finance — Leyou’s share price dynamics

SOURCE: LEYOU

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M&A
Leyou Technologies Holdings
  • Established in 1998

  • Headquarters — Hong Kong, China

  • Founded by Alex Xu

  • Team of 1,000+ employees

  • Video game developer, publisher and distributor

  • Annual Revenue’19 is $214m with EBITDA margin of ~23%

  • Latest annual report

Tencent
  • Established in 1998

  • Headquarters — Shenzhen, China

  • Team of 60 000+ employees

  • Founded by —  Pony Ma (Ma Huateng), Zhang Zhidong, Xu Chenye, Chen Yidan and Zeng Liqing

  • Global conglomerate specializing on games, internet-related services and technologies

  • 2020 interim report, 2019 annual report

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