Could Multiplay acquisition be a Game-changing move?

This morning’s announcement that UK retailer GAME Digital were to acquire events organiser Multiplay for 20m came as a shock for more than a few reasons.

First to consider is GAME’s recent and languishing history with their shareholders, being born out of the ashes of the former GAME Group’s administration proceedings in 2012. Losing 277 of their (admittedly over-ambitious) 610 brick-and-mortar stores, GAME Digital sprang forth with a more obvious focus on virtual presence. So to step back into the physical realm with an events company like Multiplay, specialising in eSports, is a move worthy of a raised eyebrow or two.

More recently, GAME Digital’s share prices tanked 56 per cent to below their IPO of 200p after reporting a profit warning after hours in mid-January. The underperformance during Holiday season sales, fast becoming a regular occurrence for traditional retailers, was attributed to "fierce competition during the Christmas period." However, second majority stakeholders Woodford Investment Management saw the dip as a prime moment to increase their share in the company from 10 per cent to 12.5 per cent over the weeks following the slump, stabilising prices above the 250p mark.

In their report to fund investors, Woodford remarked: "This was disappointing, but one poor trading update does not undermine what we see as a strong long-term investment case. The shares fell immediately and sharply after the warning and we took advantage of this by materially adding to our holding at what we believe to be very attractive valuation levels."

The warning predicted profits to hold steady at last year’s 51m, rather than the 60m expected in GAME’s financial report. Given a stable, though not booming, profit margin, an acquisition is not out of place for GAME. However, to spend almost half a year’s gross profit (before tax) to jump into a fairly novel sector is a bold decision, one which has yet to show a reaction among stakeholders at the close of London markets today (GMD: 262.80 -0.20).

That 20m price tag is in the same ballpark as UK rivals Gfinity, whose IPO last December made a strong debut onto the markets, with a value of 13m raising 3.5m in shares immediately prior to opening. Since then, Gfinity’s market valuation has reached 20.8m with a series of large partnerships, including a lucrative Activision deal to host the CoD EU finals. A similar price tag could yet be justified as Multiplay’s Insomnia series has seen growth in the past year, following a slump in popularity post-2010.

Multiplay reported a 60 per cent increase in footfall at their LAN events over 2014, with an estimated 15,000 gamers attending Insomnia 53 at Coventry’s Ricoh Arena. The festival, a combination eSports tournament and BYOC (Bring Your Own Computer/Console) LAN party has been a staple of the company’s operation for 14 years. Recently they have expanded their operation to include talks and appearances by popular YouTubers and have seen a diversification of attendees, reporting an almost equal gender split and greater age range of previous years.

This style of event seems to gel well with the proposed new Legends of Gaming Live event, pitting YouTubers like Syndicate and Ali-A against each other in exhibition matches. The event is sponsored by GAME. While not necessarily competing in the same international eSports competition space as Gfinity and ESL appear to be occupying in the UK – with the Gfinity EU Call of Duty Championships last weekend and ESL’s upcoming CS:GO and LoL tournament – Multiplay’s position is enticing to a company wanting a portion of that eSports pie. And GAME Digital look hungry.

[UPDATE 17:15] A previous version of this article placed Gfinity’s current market valuation at lower than the acquisition price for Multiplay. This has since been corrected in the copy.