G5 Entertainment opens this week with a big bang, announcing that it has signed an agreement with Swedish investment company Traction AB, according to which G5 Entertainment AB is going to issue 580,426 new shares, and Traction is going to purchase these shares from the company at the price of 21,5 Kr per share, for a total amount of 12,5 MKr.
Vlad Suglobov, CEO and board member of G5 Entertainment AB, comments: “The opportunities ahead of G5 are much larger than the company is at the moment. Even though the company is showing fast organic growth and is cash flow positive, there’s an opportunity to be more aggressive to deliver more value to shareholders. This is why the board has decided to accept what we believe is relatively small dilution to raise more capital which is going to be used to scale the company’s business model in order to increase revenue and earnings. As the development cycle for company’s products is 4 to 6 months, the management expects to see the positive effect of additional investment already in 2011, with major impact planned for 2012. The investment in new products will go to the balance sheet and is not going to affect income statement in negative way. The management is confident that increased investment in new products will more than compensate for the dilution taken, already in 2011.”
Johan Wrang, Chairman of G5 Entertainment AB, comments: “We are glad to have Traction as investor in G5. Our companies’ management philosophies are similar, and the investment comes at the moment when G5 knows how to put extra capital to use in order to grow business more aggressively. G5’s game publishing and development business is growing together with the underlying market of smartphones and tablet computers. The company is publicly listed in Sweden since October 2006, and on Aktietorget since November 2008. While the board considers Aktietorget an exceptional listing platform for entrepreneurial companies, we also see the advantages of bringing the company to the regulated market, and we may decide to do so already in 2012. We would be glad to see Peter Benson on the board of the company as it prepares for this change and works to raise its profile among Scandinavian investors.”
Peter Benson, Director in Traction, comments: “Every once in a while you come across truly impressive young companies with both an excellent management and great growth opportunities. I am convinced G5 is exactly such a company and that the future looks very promising.”
In an effort to perform the transaction at the fair market price, the share price chosen for the transaction is equal to the weighed average share price for 30 calendar days preceding the day when the deal was signed – 1st of July. After the closing of the transaction, which is scheduled to happen on August 1st 2011 the latest, the total number of shares in the company is going to be 8,000,000. Traction will own 7,26% of the outstanding shares of G5 Entertainment AB. The board of G5 Entertainment AB has decided in favor of direct share issue in order to provide the company with the expansion capital in timely manner and with minimum costs. The authorization from the annual general meeting held on June 7th 2011 is going to be used to issue new shares.
CONCLUSION: I think this is the exactly right move from G5! Growth opportunities are massive and the new capital will enable the company to release even more games than previously planned. Very positive that the CEO says the deal is EPS accretive already in 2011, despite the dilution. Also, moving the company to a regulated listing platform in 2012 should lead to increased confidence from the market!
Traction is a stock-exchange-listed investment company with an equity of SEK 1,5 bn and ownership interests in listed and unlisted companies. Traction’s role as owner is based on an active and long-term engagement, together with an entrepreneur or corporate management. Traction’s operations are based on its own methodology for developing and refining the companies in which Traction is an owner. The method has evolved over Traction’s more than 30-year history.