Original-Research: Media and Games Invest plc - von GBC AG

Einstufung von GBC AG zu Media and Games Invest plc

Unternehmen: Media and Games Invest plc

ISIN: MT0000580101

Anlass der Studie: Management Interview

Letzte Ratingänderung:

Analyst: Marcel Goldmann, Cosmin Filker

26/01/2021 - GBC Management Interview with Paul Echt, CFO of Media and

Games Invest Group

' We clearly want to reach the billion market capitalisation here and

continue to grow beyond that. '

Media and Games Invest (MGI) is a fast and profitable growing digital media

and games company. The company combines organic growth with targeted value-

creating acquisitions. The MGI Group has successfully acquired over 30

companies and assets in the past six years. MGI is one of the few leading

companies within the gaming industry that also has its own 'advertising


MGI entered into a purchase agreement a few days ago to fully acquire US

game developer KingsIsle with the well-known game title Wizard101 (member

of the MMO Hall of Fame, >50.0m gamers). This M&A transaction is

transformative for MGI as it significantly increases the economic base and

profitability of the MGI Group (increase pro-forma Group EBITDA YTD Q3

2020: c. 60.0%). For the current financial year 2021, KingsIsle expects

revenues of USD 32 million and adjusted EBITDA of USD 21.0 million, with a

very high EBITDA margin of 66%.

MGI has agreed with KingsIsle's owners on a fixed purchase price of USD

126.0 million and a performance-based purchase price component (earn out)

of up to USD 84 million. To finance the M&A, Oaktree Capital, which has a

high level of expertise in the media- and- games sector, has committed to a

capital increase of EUR25.0 million, as a result of which this company will

in future hold a stake of approximately 9.0% in the MGI Group. Against the

backdrop of this very significant acquisition, we have taken the

opportunity to interview MGI's CFO Paul Echt about this M&A measure.

GBC AG: Mr Echt, MGI has already successfully carried out numerous M&A

deals in the past and has built up a high level of M&A expertise and

experience. What were the motives for what is now the largest takeover in

the company's history?

Mr Echt: This deal was interesting for us on several levels. On the one

hand, the company owns a few very strong game IPs. The flagship Wizard101,

which has often been described in the press as the Harry Potter of online

games, deserves special mention. This game fits perfectly into our core

portfolio, as it is characterised by a very active community and a free and

long-term gaming experience. The average player therefore remains loyal to

the game for five years or more, which can be seen very well in the

figures. As this is an MGI-typical multiplayer game in the fantasy genre,

we have a lot of experience in successfully developing and growing these

games over a very long period of time. In addition, we can estimate very

well what sales and margins we can safely plan for in the coming years.

Against this background, the fixed purchase price of USD 126m is the

highest we have paid to date, but with an EV/EBITDA multiple of 6.0x it is

relatively value-enhancing. In addition, the company is headquartered in

Austin, Texas, where we also have an office with approximately 50

employees. Together, this will make the integration much easier.

GBC AG: You mentioned the online game Wizard101, which was even inducted

into the MMO Hall of Fame. What growth potential do you see for the game?

Mr. Echt: Since the launch of the game, more than 50 million players have

created an account. Around 90% of the revenue from these players comes from

North America. Although the game is already available in Europe, the focus

on the creation of content updates, expansions, additional languages and,

last but not least, in the area of marketing was clearly on North America.

With our extensive experience in localising games in the international

arena, we see considerable additional sales potential here. For example, by

offering the game in additional languages and with country-specific

community management. In addition, other devices such as consoles or

smartphones offer additional growth opportunities, especially in Asia. We

also see strong synergies in the cooperation with our media companies

regarding the marketing of the games.

GBC AG: In the course of the KingsIsle takeover, you have gained a

significant new MGI shareholder, Oaktree Capital. Please briefly tell us

more about this investor and what role this company could possibly play in

the further implementation of the growth strategy?

Mr Echt: Oaktree is a US investment firm with more than USD 140 billion

under management. As an investment fund, they bring the experience to help

management build multi-billion dollar market capitalisation companies.

Oaktree also has a long-term investment horizon of 3-5 years. We had been

in casual contact with Oaktree for some time. As the transaction became

more concrete, Oaktree was able to assist us with the necessary financing

at very short notice. As part of the transaction, Oaktree will take a

minority position of around 9%, which we are very comfortable with. Oaktree

is accordingly supportive of management's strategy to acquire other mid-

sized companies such as KingsIsle.

GBC AG: The current acquisition significantly strengthens your North

American business activities. What is the general importance of this region

for your company and are further M&A measures possible to further

accelerate the expansion of the US business?

Mr Echt: The North American market was already our largest sales market

before the KingsIsle transaction. This will now increase significantly.

Further transactions in this region are likely, as there are many exciting

companies here and we have a very good infrastructure with our own sourcing

as well as a good network. This also includes investors, banks and

insolvency administrators from whose portfolios we have already taken over

other companies. In the case of KingsIsle, our own local team also made the

initial approach and the follow-ups.

GBC AG: Through the acquisition of KingsIsle, which represents a

significant milestone in the company's history, the MGI Group will be able

to record very significant increases in turnover and earnings in the

future. Does this major acquisition also additionally increase the

attractiveness of the company with regard to gaining promising marketing

licences (so-called game IPs) for online games? And what possible

advantages arise here for the MGI Group through the group's own advertising

division (focus: digital marketing)?

Mr Echt: It is the overall package of MGI with its own media division that

is exciting for game developers who do not want to publish themselves and

do not have the expertise in the area of customer acquisition. Many of the

big games companies such as Tencent or Ubisoft also make use of this. On

the other hand, we now have a large platform with many registered players

on which highly efficient cross-selling is possible. Recently, for example,

we announced the licensing of the mobile game 'Golf Champions'. A triple-A

game developed by the top international developer Behavior Interactive, who

has also worked with Activision Blizzard, Ubisoft, Disney and Sony, among

others. The goal is to further increase the licensing and launching of low-

risk games in order to grow even more organically. But what we also want to

make clear is that we will not do any new development in the future and

invest, for example, EUR 5 - 50m in a game. That is still too risky given

our size.

GBC AG: The takeover of freenet digital GmbH completed last summer marked

the start of a significant expansion of the mobile gaming business. To what

extent can the KingsIsle acquisition with the acquired game titles

(Wizard101 and Pirate101) further support this 'strategic initiative'?

Mr Echt: Our mobile strategy is built on several pillars. The first and

most important one was to build our own media unit with good access to

customers. There is an enormously high competition for players in the

mobile games market. Efficient customer acquisition is therefore an

important key to success. The second pillar is to further strengthen and

expand the mobile portfolio through M&A or licensing. The third pillar is

to convert games from our existing portfolio to mobile devices. We are

currently working on the conversion of Desert Operations and we are also

planning the conversion of Wizard101 to mobile devices.

GBC AG: With the current acquisition, you have expanded your previous M&A

strategy to include larger 'targets'. Is this a one-off exception to take

advantage of a sudden 'good opportunity' or are you generally pursuing a

new acquisition strategy with an increased focus on profitable and larger

target companies?

Mr Echt: With more than 30 acquisitions, we now have a very strong track

record in M&A and have also created corresponding framework structures and

processes in recent years, which generally enable us to now also take over

larger targets. This positive development on the capital market also gives

us significantly more flexibility in the selection of our targets on the

financing side. I would put it this way: we have added another facet to our

strategy. The most important credo remains: we do not buy everything and

not at any price. Only if it is strategically and commercially attractive

does a deal make sense for us.

GBC AG: In the recent past, MGI was able to significantly increase its

turnover and earnings and thus continue its profitable growth series. What

can investors expect from MGI in the current year?

Mr Echt: At the end of last year, we announced up to five additional new

acquisitions. We were already able to announce two of them in January,

which means that we have already reached our financial targets for 2021. We

also have numerous organic growth projects in the pipeline. For example,

our most successful game Trove is currently in closed beta testing in South

Korea, where our partner Aprogen Games is taking over publishing.

Furthermore, we have already announced two new mobile games for 2021 as

well as a Nintendo Switch version for Trove. Investors can therefore expect

strong organic and inorganic growth from MGI in 2021.

GBC AG: In the past, you and your management team have been very dynamic in

'moving MGI forward'. What vision are you pursuing with your business

policy and what economic dimensions can the MGI Group achieve in the long


Mr Echt: As our CEO Remco Westermann said in a recent interview, we clearly

want to reach the billion market capitalisation and continue to grow beyond

that. I can't and won't say how quickly we will reach this market

capitalisation, it's not about growth 'at any price'; what matters most is

that we grow profitably with low risks. However, if we look at the current

development, we have already come a good deal closer to this goal and

already cracked the half billion USD mark last week. Furthermore, we want

to continue to offer our players exciting and long-lasting games, as well

as to operate sustainably and create value for our environment and our


GBC: Mr Echt, thank you very much for the interview.

Die vollständige Analyse können Sie hier downloaden:


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Date (time) of completion of german version: 26/01/2021 (14:05 pm)

Date (time) of first distribution of german version: 27/01/2021 (10:00 am)

Date (time) of completion of English version: 26/01/2021 (15:53 pm)

Date (time) of first distribution of English version: 27/01/2021 (10:30 am)

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