Background

In 2017, per Newzoo, digital gaming achieved a truly impressive feat – it surpassed all other forms of entertainment with respect to total revenue generated.  This trend of gaming’s dominance of the entertainment industry has only grown since this time, helped in large part by the proliferation of streaming personalities like Ninja crossing into the mainstream zeitgeist, as well as conventional household sport and entertainment names partaking in gaming in a highly visible manner.

One of the primary drivers of gaming’s ascension to the top of the entertainment industry has been the rapid growth of mobile gaming. Between Apple’s iPhone release in 2007 and 2017, mobile gaming grew at a double-digit pace per annum. According to Newzoo, consumer spending on gaming is expected to reach $180.1 billion by 2021, at which time mobile gaming is expected to constitute 59% of the overall market.

As the industry continues to grow and mature, various types of transaction activity continue to take place.  Consistent with this trend, Teknos was approached by a mobile gaming-focused organization to help value a set of assets associated with the development of a new gaming title for the purpose of spinning out said assets into a new entity ahead of sale event for the primary entity.

In addition to the mandatory financial, legal, and tax skill set needed to understand the spinout process, an intimate knowledge of gaming organizations, with a specific focus on mobile gaming companies, was essential in order to successfully complete this project.

Analysis and Recommendations

To better understand the specific dynamics affecting the decision-making process of the engaging company, Teknos held multiple discussions with company management in an effort to develop a deep understanding of the company as it exists today, as well as the potential operations of the proposed new entity moving forward.

In particular, Teknos was required to appreciate the ramifications of whether the assets would be utilized to develop a single, marquee title, or if they could be leveraged to develop multiple titles. The value of the assets would vary widely depending on the potential future utilization of the assets; as such, we evaluated multiple scenarios across two discrete situations: a single-title application of the assets; and a multi-title application of the assets.

Teknos ultimately validated the company’s internal financial forecast, fine-tuning certain parameters depending on the scenario being evaluated.

Results

At the conclusion of the project, Teknos provided company management with a deeper understanding of the financial consequences regarding the pursuit of a single title as opposed to multiple titles in its new endeavor.  This analysis ultimately assisted company management to successfully navigate through its corporate planning process as it executed both the sale of the primary entity and the spinout the assets associated with a new company.


Teknos Associates provides valuation and advisory services for emerging growth companies and their venture capital backers. Clients rely on our financial expertise, knowledge of technology markets, and high standards to deliver relevant and timely valuation reports, opinions, and analyses.