Page 9 - bne_Tech_10_2020

Investment
October 2020 www.intellinews.com I Page 9
Russian Mail.ru boosts gaming with Deus Craft acquisition
Russian internet major Mail.ru Group has acquired the controlling 51% stake in the game developer Deus Craft for $49mn, the company announced. The deal includes a $35mn deferred payment to be transacted in April 2021 should the studio meets a $15mn monthly revenue target by the end of 1Q21.
As reported by bne IntelliNews, the company has been developing a solid position in video games and cybersports. In 2018 Mail.ru acquired one
of the largest cybersports holdings in the world, ESforce, for $100mn. Most recently, the company reiterated its long-term target of doubling its gaming Ebitda by 2022 and reaching 20-25% Ebitda margin in the segment.
VTB Capital (VTBC) on October 9 wrote that the deal is seen as positive for Mail.ru, as the game segment as one of the key drivers for Mail.ru in the coming years and a huge opportunity due to the large addressable market.
In addition, the deal indicates that the recently raised money from the accelerated book building and the placement of convertible bonds "will likely be spent on taking advantage of this and potentially other opportunities to develop the core business."
To remind, in September Mail.ru raised $0.6bn of capital through $200mn of newly issued accelerated book building (ABB) shares making 3% of capital, and $400mn of 5-year convertible bonds making 5% of share capital.
The main product of Deus Craft at the moment
is the mobile game Grand Hotel Mania, with
two more mobile games to be released in the next 12 months. It has offices in Moscow, Saint Petersburg, and Novosibirsk, and employs more than 70 people. According to Mail.ru, Grand Hotel Mania generated more than 50% of its September revenues in the US.
VTBC reminds that games generated some 40% of Mail.ru's revenues in 2Q20 and that the company plans to generate over 80% of revenues from mobile games and over 80% from international markets by 2022 (both shares stood at 69% in 2019).
"Acquisitions of game studios are a part of Mail. ru’s strategy to ensure sustainable growth
of its games segment," BCS Global Markets commented on October 10, seeing the deal terms as favourable for Mail.ru, as the performance- contingent pricing accounts for possible and there is opportunity for value accretion.
However, BCS GM warns that as Deus Craft is currently loss-making, Mail.ru expects its consolidation from 2H20 to have a slightly negative impact on Mail.ru’s Ebitda in 2020.
BCS GM, VTBC and Sova Capital analysts continue to see Mail.ru shares as attractive. BCS GM and VTBC reiterated the Buy calls on the name, seeing 29% and 27% upside respectively.