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COVID-19 has been a sharp reminder of how public equity markets can make the difference between surviving or not.
On the 25th of March, we saw food and drink outlet operator SSP Group announce that it was raising £1 billion in new equity, in what was the first UK-listed company to seek help from equity investors following the catastrophic impact of Covid-19. SSP was however the first of many, and in the following three months we have seen investors respond brilliantly to the needs of publicly listed companies, raising a total of £12 billion for more than 170 companies.
But it isn’t just those struggling to survive who are raising new equity. In May, Keywords Studios, the Dublin-based technical services provider to titles such as Fortnite and Assassin’s Creed announced it was raising £100m.
What was different here was that after seven weeks of companies raising emergency cash, Keywords wasn’t issuing equity to repair its balance sheet, it was raising capital because it was doing so well.
Keywords was the first PLC since the onset of Covid-19 to raise equity for acquisitions – which make a central part of its strategy. –The £100m it successfully raised now positions the business to swoop on smaller rivals who are not as well funded. Since placing their new shares at 1450p, they have performed strongly with the share price rising to over 1800p.
Keywords is one of a group of UK-listed video gaming companies which includes Codemasters, Sumo, Team 17 and Frontier Developments. All are excellent examples of how public markets can fund and support high quality businesses that reward their investors with structural growth.
Many of these companies have actually benefited from the impact of Covid-19. Social restrictions have accelerated growth across the sector with home entertainment, and video game consumption in particular, spiking. As a result, games platforms are experiencing record breaking levels of participation. British video game developer Codemasters last month reported that their daily active users had jumped from 351,000 this March to 802,000 a month later.
As physical sporting events were cancelled around the world, esports are replacing them, with sports like Formula 1 including real-world rising stars in virtual races.
But we don’t see these changes as being temporary – even as the world returns to a new normal we see the crisis delivering a permanent uptick in interest in these events. As the worlds of media, gaming, publishing, sports and social media all converge, the industry is set for a dynamic and very active period of M&A.
Keywords Studios’ rapid expansion through acquisition has helped its market value to rise to over £1.3 billion since its c.£50 million market debut in 2013, demonstrating the potential of using public equity to fund an ambitious growth strategy. With the industry going through a period of such fundamental change, and investors willing to support market leaders, now might well be the perfect time for privately owned companies to take charge of their destiny and use investor backing to become consolidators, rather than targets, in a bright future for the sector.
Piers is responsible for Goodbody’s UK-facing corporate advisory business and has been head of their London office since 2017. He focuses on corporate broking, equity capital markets and corporate finance advice. Contact Piers Coombs, Don Harrington, Charlotte Craigie and Patrick O’Donnell at Goodbody. www.goodbody.ie
