Shares in video games developer Sumo Group (SUMO:AIM) surged 42% higher to 508p on Monday after Chinese internet company Tencent swooped with a 513p cash offer, representing a premium of 43.3% on Friday’s closing price.
Shenzhen-based Tencent is Sumo’s second largest shareholder, owing an 8.75% stake which it purchased in November 2019 and if successful will continue a spending spree which has seen it make 10 deals so far in 2021.
Today’s offer values Sumo at £919 million, representing a five-fold increase for shareholders who were fortunate enough to have purchased the shares when the company listed in December 2017 at 100p per share.
Sumo was founded in 2003 by chief executive Carl Cavers, Darren Mills and Paul Porter. It was floated by private equity firm Perwyn Capital, which still owns 17% and said it backed the offer from Tencent.
EXPERT VIEW
Katie Cousins, gaming guru at Shore Capital, said she views the all-cash offer as ‘generous’, adding ‘we suggest shareholders accept the offer, enjoy the profit, and look elsewhere for exposure to the industry’.
The deal represents a punchy EV-to-EBITDA multiple (Enterprise value to earnings before interest, taxes, depreciation, and amortisation) of 55 times.
This is an 83% premium to last December’s takeout valuation of racing game video developer Codemasters when it was purchased by Electronic Arts.
Cousins said although she didn’t expect the deal to get blocked, with increased regulatory scrutiny over Chinese overseas deal making, and given Tencent’s ‘previous reputation within cybersecurity concerns, we await to see any comments from the UK government.’
