Candy Crush: IPO story

Investment Banking
Group Assignment on IPOs
King Digital Entertainment plc
Presentation date: 6 June 2015
Group Members:
Maria Antoniou
Eliana Photiadou

https://www.youtube.com/watch?v=CVMCG62fvag

IPO
WHAT HAPPENED?
WHO IS KING?

Entrepreneurial Tech
Provider of Digital games
Candy Crush Saga

Candy Crush Saga
in 2013
Became the
“Best Social Game”
Award given by IMGA
[International Mobile Gaming Awards]

Trademark
in US & EU
owner of the word “CANDY”
For video games, clothing, headgear and footwear

“King” branding name
replaced the “King.com” in November 2012
Incorporated in Ireland in June 2013 as the
holding Company to facilitate the public offering
Share for share exchange
of Midasplayer International Holding Co plc for
King Digital Entertainment plc shares that have
substantially same rights

Historical financial statements of Midasplayer
International Holding Co plc became historical
consolidated financial statements of King
Digital Entertainment plc
Corporate reorganization and share for share
exchange were reflected retrospectively
“King” conducted business through
Midasplayer International Holding Co plc &
subsidiaries

“King” source of income - 95% from three games
Candy Crush Saga had 78%
Feb 2013 Candy Crush Saga & Bubble Witch Saga were
launched in Japanese & Korean markets
April 2014 Candy Crush Sega was launched the Chinese version
July 2014 Pyramid Solitaire Saga was launched in Facebook
Free to play cross platform game available in iOS & Android
devices. Farm Heroes Saga was launched on Amazon AppStore
July 2014 Launched in UK collection of candies in partnership with
Spun Candy
Oct 2014 Launched “Candy Crush” with Zara Terez brand collection,
Women’s clothing: full-length printed leggings, skirts & dresses

Mission: Product to match players’ lifestyle
anywhere, anytime and
on any device
Vision: Become the leading games
entertainment firm
in mobile world
Time to Grow
Opportunity was seen even from consumers and
social networks despite the fact that industry
was undergoing this dramatic change

Games were offered as
o Free to play and use
o Simple and intuitive
o Provide social network interactions
o Provide service at anytime and anywhere
o Play on real terms or synchronize the virtual terms
progression level
o Unique cross platform architecture that allows to play with
Apple’s iOS
Google’s Android
Amazon’s Kindle
Facebook
King’s Users dedication & loyalty became an asset for
building sustainable long term business

Footstep to Initial Public Offering
February 2014 filed an IPO in US based up on
Strong financial results
Favourable environment for small technology companies
Purpose
“To create a public market for company’s ordinary shares,
facilitate access to public equity market, increase visibility in
the marketplace and to obtain additional capital”
IPO’s fundamental details
Ordinary shares offered are 22.200.000 at a price of $22,50per share
New shares 15.533.334
Existing shares (selling shareholders) 6.666.666

IPO fees
IPO was announced in March 2014 by a syndicate having JP Morgan as lead underwriter

IPO Proceeds intended use
“Be invested in working capital, acquisitions, short term,
investment grade and interest bearing instruments”
Liquidity issue

“Forward looking plan” raised issues about matters such as
o Growth
o Launching new games & enhance existing games functionality
o Update, support & sustain global franchise games
o Retain & increase player base and increase in game micro
transactions
o Ability to successfully enter new markets & manage
international expansion
o Competition and protect and develop brand & intellectual
property portfolio
o Attract and retain qualified employees & key personnel
o Future business development & financial condition

Competitive advantage
King developed a successful mobile fundamentally differentiated
product along with the ability to keep delivering highly engaging daily
entertainment will allow “King” to sustain and extend marketing
leadership position.
Competitive environment
Include Activision Blizzard Inc., DeNA Co1, Electronic Arts Inc., Gree
International Inc1., GungHo Online Entertainment America Inc1,
Microsoft Corporation, Nexon Co Ltd, NHN Entertainment Corp,,
Supercell Oy, Tencent Holdings Ltd and Zynga Inc.
Plus, many new small developers.
Plus large companies with significant online presence such as
Amazon.com, Apple Inc, Facebook Inc, Google Inc, The Walt Disnay
Company or Yahoo! Inc. If choose to expand in games or develop
competing games.
1: registered in TSE [Tokyo Stock Exchange]

Employs 665 people and operations are done through
o game studios in Stockholm, Barcelona, Bucharest, Malmo, London
o offices in San Francisco and Malta
Operates several cash and equity settled share based compensation plans
Following the completion of IPO, option pricing and values are determined
based upon quoted market price of ordinary shares.

Expansion creates further obligations & management costs
Need has been identified to:
oEnhance financial and management control systems and infrastructure
o Adhere reporting requirements of
Securities Exchange 1934 Act amended (Exchange Act)
Securities and Exchange Commission (SEC)
o Implement Corporate Governance
Allocate authority over management to the BoD
BoD delegate management to committees of BoD
Review Directors’ term, appointment and removal, duties,
conflicts of interest

Key
metrics
used
Gross bookings,
revenue,
adjusted EBITDA4 (earnings before interest, depreciation and amortization) and
EBITDA margin and
operating monthly active users (MAUs),
monthly unique users (MUUs),
daily active users (DAUs),
monthly unique payers (MUPs),
monthly gross average bookings per paying user (MGABPPU) and
gross average bookings per user (GABPU)

Key strategies as given in the IPO’s prospectus were to
o strengthen and broaden unique game development model,
o continue to provide highly engaging cross platform content,
o grow the network and expand to new platforms around the world,
o foster innovation process through company’s technology stack and
infrastructure of game engines, marketing, analytics platforms
that provide key advantages for performance scale, operation
transparency, innovation speed and high level engaging player
experience.
Inherent risks involve the followings
o significant rapid operational expansion and relatively small history
o profitable games are few
o need to develop new and enhance further existing games
o need to maintain existing players loyalty
o need to grow and increase the network size
o Industry significant competition
o reliance on third party platforms

Respice Finem
Money raised $500m
IPO price was $22,50
KING closing price on 26 March 2014 was $18,19
What went wrong with King?
o RISH newly incorporated company with complex corporate structure
o Has a basic matured product
o Uncertainty on funding purpose
Was is it a possible mean to exit existing shareholders ?
o Market is unpredictable

Investment Banking
IPOs
Presentation date: 6 June 2015
Group Members:
Maria Antoniou
Eliana Photiadou

Candy Crush: IPO story

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