The London Stock Exchange AIM IPO was backed by several large, London-based AIM Institutional Investors and Private Client Brokers, a London Private Equity Group and other U.K.-based investors.
On a pro forma basis, the Company generated
$12.4 million of revenue and $4.7 million of EBITDA during 2011, yielding
trailing acquisition multiples of 3.8 and 10.1, respectively, upon listing on London's AIM.
CEO Mark Opzoomer said, "We are delighted
to list on London's AIM to provide the capital and incentives for the entrepreneurs
joining our group. We begin with a strong group of companies operating in
key gaming centers in the U.S., China and Europe, generating a mix of revenue
from subscriptions, virtual good and projects with exceptionally talented employees.
We have a great opportunity before us to accelerate the growth of this initial
group across multiple platforms and to create a world-class games entertainment
group."
Overview of Listing on London's AIM
Zattikka,
with its main operations in San Francisco, California, and Austin, Texas, raised
$20 million in its recent IPO on the London Stock Exchange’s Alternative Investment Market (AIM).
Simultaneous
with the London AIM IPO, the Company completed three acquisitions, valued at $47 million,
where the founders/shareholders of the acquired companies received $14 million in
cash plus $12 million in notes, due in 2013, and $13 million in London Stock Exchange AIM-listed shares, for a 36%
stake in the London AIM-listed Company, and the potential for deferred
consideration of up to $10 million in cash based upon the achievement of
2012/13 performance targets. The
acquired companies had net assets of $2 million.
Zattikka’s
three Founders identified the online and mobile, social/casual, interactive
games entertainment market as highly fragmented and experiencing rapid growth,
which they plan to capitalize on by effecting acquisitions and accelerating
organic growth, with the goal of becoming a large-scale, diverse games
developer and publisher across key digital platforms, geographically focused on
the U.S., China and Europe. The Company
was formed specifically to effect the initial acquisitions of Hattrick, Concept
Art House and Sneaky Games. The Founders
retained a 6% stake in the London AIM-listed Company.
Hattrick
was founded in 1997 and is based in Sweden with 23 employees. Hattrick’s original game is free-to-play online
where the player is a soccer manager who creates a club, builds a team and
competes against others in real-time.
Hattrick’s second game is a community-based, music industry role-playing
game where players strive for fame in a virtual music industry. Both are upgradable via subscriptions.
Concept
Art House was founded in 2005 and is based in San Francisco, California with 13
employees and has a substantial presence in Shanghai, China with 116 employees. Concept Art House undertakes project-based
art and design work for game developers and utilizes a revenue-sharing business
model.
Sneaky
Games was founded in 2009 and is based in Austin, Texas with 20 employees. Their three games are all social, mid-core
fantasy role-playing games, one of which was commissioned by NBC Universal’s
Syfy Channel, designed around their weekly programming, where revenue is
shared. Sneaky Games utilizes a
‘freemium’ business model, which seeks to engage users so that they return on a
regular basis, converting some to paying players who purchase virtual goods to
enhance the experience.
Zattikka
is the successor to U.K.-based, online games company Expedite 5, which developed
its own Social Network Analytic Platform (SNAP), a cloud-based analytics and
metrics platform. SNAP is capable of
reporting on any game, regardless of the platform, collecting granular metrics
data as games are played; allowing for aggregation, storage and reporting of
that data in real-time. SNAP allows the
product development team to analyze the success of individual game features, based
upon actual user behavior, and identifies areas of the game for improvement in
order to enhance user engagement, retention, virality and monetization. The Company estimates that for every 10 games
published, it will collect 250 million pieces of data per day. Zattikka’s CEO was a Director of Autonomy (now
part of HP) and one of the Non-Executive Directors was their COO and General
Counsel, therefore, the integration of SNAP across all of the Company’s games
and the ‘Big Data’ implications of SNAP are core to the future strategy.
Key London AIM Listing Metrics
- $20.0m gross was raised in the London Stock Exchange AIM IPO, $15.1m net of offering costs
- Offering costs on London's AIM amounted to 24.8% of the gross capital raised
- Change of London AIM Nominated Adviser (Nomad) and London AIM Nominated Broker and acquisition complexities accounted for ½ of offering cost
- Undertaken on a ‘best efforts’ basis, as opposed to being underwritten
- London AIM Nominated Broker commission of 5.0%
- Corporate finance fee of £250k ($400k)
- 18-month warrant over 1.0% of the enlarged share capital at the IPO price
- The aggregate acquisition consideration consisted of:
- $14.1m of cash
- $12.6m in London AIM-listed shares
- $12.1m of 5% notes, due in 2013 or convertible into shares at the holder’s option
- $10.3m of deferred consideration, in cash, based upon 2012/13 performance targets
- Less $1.7m of net assets
- Valuation of:
- $37.1m, assuming no deferred consideration is earned
- $47.4m, assuming the maximum deferred consideration is earned
- Trailing revenue multiple on the London Stock Exchange's AIM of 3.0 or 3.8
- Trailing P/E ratio on London's AIM of 9.8 or 12.5
- Trailing EBITDA multiple on London's AIM of 7.9 or 10.1
- Opening market capitalization upon listing on London's AIM of $34.8m
- Free float on London's AIM of 46%
Key Financial Metrics
(in
USD millions)
|
Y/E 12/31/09[1]
|
Y/E 12/31/10
|
Y/E 12/31/11[2]
|
Δ ’09 - ‘10
|
Δ ’10 - ‘11
|
Revenue
|
$6.9
|
$9.5
|
$12.4
|
+38%
|
+31%
|
Cost
of Goods Sold
|
0.2
|
1.1
|
2.0
|
+450%
|
+82%
|
Administrative
Expenses
|
3.5
|
5.7
|
5.9
|
+63%
|
+4%
|
Operating
Income
|
3.2
|
2.7
|
4.5
|
-16%
|
+67%
|
Interest
Expense
|
0.0
|
0.1
|
0.2
|
N/A
|
N/A
|
Tax
Benefit/Expense[3]
|
0.0
|
-0.1
|
0.5
|
N/A
|
N/A
|
Net
Income
|
3.2
|
2.7
|
3.8
|
-16%
|
+41%
|
EBITDA
|
3.4
|
3.0
|
4.7
|
-12%
|
+57%
|
Total
Assets
|
3.6
|
4.7
|
6.5
|
+31%
|
+38%
|
Since
the Zattikka's London AIM IPO completed within nine months of the latest audited financial
statements, unaudited, comparative, stub period financials were not required
and the Company chose to not provide updated management accounts.
London AIM Shareholder Base
Zattikka
is the successor to U.K.-based online games company Expedite 5. The founders and other shareholders of
Expedite 5 received 1.4 million shares in connection with the London Stock Exchange AIM IPO and the
founders and other shareholders of Hattrick, Concept Art House and Sneaky Games
received an aggregate of 8.0 million London AIM-listed shares. These relative shareholdings are presented retrospectively
in the table below so as to illustrate the eventual ownership stakes and
related dilutive effect of the 12.6 million shares issued for cash in the London Stock Exchange AIM IPO, leaving
the Company with 22.0 million shares outstanding.
Shareholder
|
Pre-IPO
%
|
Post-IPO
%
|
Founders/Shareholders
of Hattrick, Concept Art House and Sneaky Games
|
85.3
|
36.2[4]
|
Founders
of the Company
|
14.7
|
6.24
|
London
Institutional Investor (Fund Manager)
|
-
|
18.7
|
London
Institutional Investor (Fund Manager ) and Private Client Broker
|
-
|
11.5
|
London
Private Equity Group
|
-
|
7.2
|
London
Institutional Investor (Fund Manager)
|
-
|
3.6
|
London
Institutional Investor (Fund Manager)
|
-
|
3.2
|
Other
New U.K. Investors
|
-
|
13.4
|
Totals
|
100.0
|
100.0
|
Beyond
the obvious benefits of creating $14 million of immediate liquidity for the founders
and other shareholders of the three acquired companies and providing general working
capital, the Company has new U.K.-based London AIM investors from which to create additional
post-IPO liquidity on London's AIM and general access to the London AIM capital markets for future
financings. The increased profile from
being public should enhance the Company’s marketing and business development
efforts and enable it to more easily execute on its ‘buy-and-build’ strategy, most
likely with the use of shares. Finally,
the Company put in place a limited long-term incentive plan, similar to a share
option plan, which could be expanded to include other employees and Board
members and used as an incentive to attract new employees and Board members.
London AIM Board of Directors and
Corporate Governance
The Company’s Board consists of three Executive Directors (CEO, President and CFO), a Non-Executive Chairman and five Non-Executive Directors (four of whom are Independent); all with solid resumes and a good blend of complementary experiences and skill sets. The Company established an Audit Committee and a Remuneration Committee, each consisting of three members, all of whom are Independent, except for the Non-Executive Chairman being a member of the Remuneration Committee. The Company’s Board intends to meet at least four times each year.
The Company’s Board consists of three Executive Directors (CEO, President and CFO), a Non-Executive Chairman and five Non-Executive Directors (four of whom are Independent); all with solid resumes and a good blend of complementary experiences and skill sets. The Company established an Audit Committee and a Remuneration Committee, each consisting of three members, all of whom are Independent, except for the Non-Executive Chairman being a member of the Remuneration Committee. The Company’s Board intends to meet at least four times each year.
The
Company also established an Executive Board, which is also led by the
Non-Executive Chairman, and includes all three of the Executive Directors. The Company’s Executive Board intends to meet
at least monthly.
Companies listed on London's AIM are not required to comply with the U.K. Corporate Governance
Code (the Combined Code), which is mandatory for companies listed on the London
Stock Exchange’s Main Market; however, the Company intends to observe the
requirements of the Combined Code to the extent considered appropriate in light
of the Company’s size, stage-of-development and resources. The Company also intends to follow the Corporate
Governance Guidelines for Smaller Quoted Companies, which are published by the
Quoted Companies Alliance.
London AIM Legal Considerations
Even
though the Company considers its main country of operation to be the U.S., since
the Company is incorporated in the U.K. and its ‘place of central management
and control’ is in the U.K., the three significant differences between U.S. and
U.K. corporate law automatically apply as follows:
- Pre-emption rights (i.e. anti-dilution) – Shareholders must be offered the opportunity to participate in the issuance of additional London Stock Exchange AIM-listed shares for cash.[5]
- Notifiable Interests – Shareholders are required to notify the Company of, and the Company is required to publicly announce, holdings at or above the 3% level and whenever a full percentage point is breached in either direction.
- Takeovers (i.e. mandatory offer) – If any party, or parties acting in concert, accumulates a holding of 30% or more, they must make a cash offer to the other shareholders at the highest price they paid for the Company’s AIM-listed shares during the last 12 months.
The London Stock Exchange AIM IPO
was not subject to Regulation S of the U.S. Securities Act of 1933; therefore,
the shares are eligible for dematerialization and trading within CREST, the
most common electronic system for the holding and transfer of London AIM-listed shares in the
U.K. As such, it was not necessary to
appoint a Depository and create Depository Interests, as would be the case for
a company domiciled outside the U.K. or one of its Crown Dependencies, the Channel
Islands or Isle of Man.
London AIM Accounting Considerations
Since
the Company is incorporated in the U.K., it is required to report using
IFRS. While British pounds Sterling is
the functional currency for Expedite 5 and Hattrick, both companies chose to
adopt the U.S. Dollar as their reporting currency, an accounting policy that
will be followed by the Company when it prepares its first set of financial
statements. The functional and reporting
currency for Concept Art House and Sneaky Games is the U.S. Dollar.
The
U.K. Member Firm of an international accountancy network acted as Reporting
Accountant and the U.K. Member Firm of another international accountancy
network acted as Auditor, except for Hattrick, which was audited by the
Gibraltar Member Firm of an entirely different international accountancy
network. Since the London Stock Exchange AIM IPO completed within
nine months of the latest audited financial statements, unaudited, comparative,
stub period financials were not required and the Company chose to not provide
updated management accounts.
An
unaudited pro forma statement of net assets is never required in connection
with a London AIM IPO but was provided to illustrate the pre-IPO positions of the
acquired companies, the net proceeds from the London Stock Exchange AIM IPO and the impact of the cash
paid, notes issued and deferred consideration recorded to effect the acquisitions.
Other
The
Company’s Nominated Adviser (Nomad) did not require the preparation of any Experts’ Reports;
however, certain information contained in the AIM Admission Document was sourced
from third parties, which the Company believes was accurately reproduced and no
material facts were omitted.
[1] Only includes Hattrick since Concept Art
House and Sneaky Games were immaterial during 2009.
[2] Extrapolated, for comparative purposes, based
upon the audited results for the nine-months ended September 30, 2011.
[3] From a financial perspective, Hattrick is the
most significant of the three acquired companies and is incorporated in
Gibraltar. Hattrick was exempt from
Gibraltar corporation tax through 2010; however, the Gibraltar corporation tax
rate is now 10%.
[4] Subject to a 12-month lock-in and customary
orderly market provisions on London's AIM for a further 12 months.
[5] It is customary for London AIM-listed companies to
have a standing authorization from their shareholders for the issuance of
London AIM-listed shares for cash of up to 10% of the then outstanding shares over a 12-month
period. This flexibility increases the
certainty and speed of small capital raises and reduces transaction costs,
since further communications with, and approvals from, shareholders are not
required.
