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Following the KingsIsle transaction in January 2021, Media and Games Invest (MGI) has announced a second transformational deal – the cash acquisition of Smaato (a mobile-first adtech platform) for €140m, 10.7x FY21e EBITDA. The transaction adds scale to MGI’s existing adtech platform, Verve, and brings new capabilities, particularly in mobile web and web programmatic advertising. Smaato’s adj. EBITDA margin (FY20: 25%) will significantly strengthen Verve’s margins (FY20: 9%). Management has raised the group’s FY21 revenue guidance to €234–254m and adj. EBITDA guidance to €65–70m. At the midpoint, the implied valuation of 16.1x EV/FY21 adj. EBITDA remains in line with peers, despite superior growth. The transaction is to be funded from existing cash resources and expected to complete in Q321, with €12.7m held over and payable in March 2022. Leverage remains within management’s target range of 2–3x adj. EBITDA.
Written by
Media and Games Invest |
Acquisition of Smaato and updated guidance
Software & computer services |
Scale research report - Flash
16 July 2021 |
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Following the KingsIsle transaction in January 2021, Media and Games Invest (MGI) has announced a second transformational deal – the cash acquisition of Smaato (a mobile-first adtech platform) for €140m, 10.7x FY21e EBITDA. The transaction adds scale to MGI’s existing adtech platform, Verve, and brings new capabilities, particularly in mobile web and web programmatic advertising. Smaato’s adj. EBITDA margin (FY20: 25%) will significantly strengthen Verve’s margins (FY20: 9%). Management has raised the group’s FY21 revenue guidance to €234–254m and adj. EBITDA guidance to €65–70m. At the midpoint, the implied valuation of 16.1x EV/FY21 adj. EBITDA remains in line with peers, despite superior growth. The transaction is to be funded from existing cash resources and expected to complete in Q321, with €12.7m held over and payable in March 2022. Leverage remains within management’s target range of 2–3x adj. EBITDA.
Acquisition of Smaato for €140m in cash
Founded in San Mateo in 2005, with offices in Hamburg, Pune and Hyderabad, Smaato offers a mobile-first digital supply-side platform (SSP), serving publishers on a SaaS basis. Together with Verve’s 1.4bn monthly unique users, Smaato is expected to extend the group’s combined reach to 1.8–2.0bn monthly uniques. Shanghai Qiugu Investment Partnership (SQI), which bought Smaato in 2016, agreed to the sale at an EV of €140m, 10.7x management’s estimated FY21 adj EBITDA and 6.8x management’s estimated FY22 adj. EBITDA. Management expects to realise significant cost and revenue synergies from the acquisition.
FY21 adjusted EBITDA to more than double y-o-y
Management expects Smaato to deliver FY21 revenues of €39m (c 20% y-o-y growth) and adj. EBITDA of €13m (c 60% y-o-y growth), a 33% margin. This compares to Verve, with 9% adj. EBITDA margin in FY20, expected to rise to 15–20% in the medium term as the platform consolidates and costs are cut. Adding in an expected three-month contribution from Smaato (Q4 is typically the strongest quarter), management has raised MGI’s FY21e revenue guidance to €234–254m (a 67–81% y-o-y increase) and adj. EBITDA guidance to €65–70m (a 123–141% y-o-y rise), implying a blended 28% margin (at the midpoint of the guidance).
Valuation: In line with peers despite superior growth
MGI’s valuation is supported by continuing organic growth, as well as M&A (45% revenue CAGR in FY15-20). Including a part-year contribution from Smaato, at the midpoint of management’s FY21 guidance (adjusted EBITDA of €67.5m) and assuming net debt of 3x FY21 adj. EBITDA, MGI is trading on c 16.1x FY21e EV/ adj. EBITDA and 4.4x FY21e EV/revenue. Factoring in the Smaato acquisition, MGI continues to trade in line with its peer group despite its superior growth prospects.
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Consensus estimates
Source: MGI accounts (historical figures), Refinitiv consensus (forecasts) not yet reflecting revised guidance. Note: *EBITDA adjusted for one-off M&A and financing costs. |
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