ESE Entertainment's Strategic Asset Sales: Boosting Growth And Strengthening The Balance Sheet?

ESE Entertainment Inc. ESE ENTEF is a Canadian-based company that has recently made headlines in the gaming industry with the sale of its wholly owned subsidiaries, Digital Motorsports (DMS) and Frenzy. For those invested in the gaming sector or gaming enthusiasts, this sale could be of particular interest as it represents a shift and sharpened focus of bringing new users/players to video game developers. 

The sale of Digital Motorsports and Frenzy sp. z.o.o. by ESE Entertainment Inc. ESE ENTEF for CAD$41 million (about $30.4 million) represents a significant premium in the esports industry. This premium is indicative of valuations that esports mega-companies are willing to pay for strategic acquisitions in the gaming industry.

The sale of DMS and Frenzy, two non-core assets, looks like it will generate a considerable working capital for ESE, possibly allowing the company to pursue growth and expansion opportunities. This strategic move could be crucial in enabling the company to be well capitalized going forward and take advantage of opportunities during challenging macroeconomic conditions. 

Furthermore, the gaming industry is expected to continue growing in the coming years, presenting additional opportunities for companies like ESE. According to a report by Newzoo, the global games market is expected to reach $217.9 billion in 2023, up from $157.3 billion in 2020, representing a compound annual growth rate (CAGR) of 9.2%.

A Closer Look At The Sale Of DMS And Frenzy

On March 29, the company announced that it had entered into a non-binding letter of intent (LOI), on March 28, with a U.S. special purpose acquisition company (SPAC) and a gaming media company with key operations in Latin America, contemplating the acquisition of ESE’s wholly-owned subsidiaries, DMS and Frenzy alongside the SPAC’s acquisition of the gaming media company.

While ESE, a well-known gaming and esports company that provides a range of services to leading video game developers and publishers, did not disclose the name of the purchasing company, it said the purchaser is a Nasdaq-listed company with over CAD 130 million (about $96.5 million) in cash and cash equivalents in its treasury and in trust as of its most recent filings.

Providing a further update on the sale, on March 30 ESE revealed that the company’s management team and Board of Directors have been working diligently to unlock the true value of ESE’s assets and believe that the transaction will be a significant step towards that goal.

“The Frenzy and DMS businesses collectively represent approximately 17% of ESE’s total business by sales. While these businesses have contributed to the overall growth of the company, management and the Board of Directors believe that they have not been adequately valued,” Konrad Wasiela, CEO of ESE, commented.

He added that “By carving out these assets, ESE is taking the first step to better highlight the value of its core intellectual property and technology, GameAddik. Our business has been growing rapidly, and we are strategically shifting focus towards our technology and data-driven business.”

Wasiela is optimistic that the sale of DMS and Frenzy is expected to increase the book value of ESE, enhance cash reserves and liquidity, and improve the company’s balance sheet. “As ESE focuses on its core technology and data operations, the divestiture will enable the company to improve margins and work towards profitability, ultimately benefiting ESE shareholders.”

The LOI contemplates that the transaction will be completed by way of an amalgamation, merger or other business combination among the SPAC, DMS, and Frenzy. The entity resulting from the transaction (the Resulting Entity) is expected to trade on the Nasdaq and continue the operation of DMS and Frenzy’s existing businesses.

The consideration for the acquisition of DMS and Frenzy is anticipated to be paid in common shares of the resulting entity, valued at CAD$41 million. ESE would further be entitled to additional common shares of the Resulting Entity upon achieving certain milestones related to the Resulting Entity’s share performance on the Nasdaq.

With a history of providing billions of user impressions to keep the games of game publishers like Electronic Arts Inc. EA, Roblox Corp. RBLX, and Ubisoft Entertainment filled to the brim, the sale of the two assets could be another catalyst for growth for ESE.

Featured photo by Gorodenkoff on Shutterstock

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