In summary; Stillfront Group is paying USD 90m for 100% of the shares in KIXEYE with additional earn-out consideration of USD 30m. Given Stillfront’s proven value-adding capabilities, we know for sure that the earn-out is based on low single digits multiples of 2019’s EBITDA. Stillfront finances the deal through a bridge loan facility; the company aims to repay the bridge during the coming twelve-months through new debt and a share issue likely in the region of SEK 500m. KIXEYE will be consolidated from the first of July. As part of the Transaction, the MMO product, Kingdom Maker, will be divested to Global Worldwide before completion.
Just according to Stillfront’s successful recipe, the management and key employees will remain to continue to develop the company further. KIXEYE’s live products are; Battle Pirates, War Commander, Vega Conflict, and War Commander: Rogue Assault. Where; Battle Pirates has been the top grossing game on Facebook, and both Battle Pirates and Vega Conflict are available cross-platform. War Commander: Rogue Assault is a mobile title. In the press release, nothing is communicated about the pipeline of KIXEYE, but likely the company has new products in development.
During Q1 KIXEYE had a preliminary unaudited IFRS converted pro forma net revenue of SEK 128m and an EBITDA of SEK 65m, corresponding to an EBITDA margin of almost 51%. We have looked at some data traffic estimates for KIXEYE’s games, the traffic seems to have been relatively stable during the past year, and the same goes for the gross ranking for War Commander. The audience is most likely relatively mature, so KIXEYE is likely focusing more on the monetization through new content than on UA. We have low visibility into the growth rates, but we believe that the acquisition adds roughly SEK 500m in annual revenue and SEK 240m in EBITDA to the Group. The acquisition multiple, without the earn-out, then amounts to about EV/S 1.7x and EV/EBITDA 3.5x which is extremely cheap when Gaming companies trade at an EV/EBITDA multiple in the range of 7-15x. Even with the earn-out of USD 30m, the EV/EBITDA multiple amounts to just 4.6x, and that is with our conservative “low growth” assumption.
We have included KIXEYE using conservative assumption from Q3 and beyond. Our new Base-case now amounts to 300 SEK per share. We find that Stillfront is one of the strongest cases in the Nordic Gaming scene.
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