The board of Sheffield-based video gaming firm Sumo Group plc said on Monday it will unanimously recommend to shareholders a £919 million cash takeover offer for the company from a subsidiary of China’s Tencent.
The offer of £5.13p for each Sumo share represents a premium of 43.3% to Friday’s closing price of £3.58 on Friday.
“The Sumo board, which has been so advised by Goldman Sachs and Zeus Capital as to the financial terms of the acquisition, considers the terms of the acquisition to be fair and reasonable …” said Sumo.
“Together with the Tencent group’s existing holding of … approximately 8.75 per cent of the Sumo shares … Tencent Bidco has support for the acquisition in respect of Sumo shares representing approximately 33.4 per cent of the Sumo shares in issue …”
Tencent has stakes in companies that make Fortnite and League of Legends and is the world’s second-largest videogame group by revenue after Sony.
“Chinese deals may imply a higher regulatory risk, but we see no likely resistance or counterbid,” analysts at Jefferies Financial Group wrote in a note.
“We always understood Tencent’s interest in Sumo as being that Sumo has ‘AAA potential’ and might have seen the group’s future pipeline as attractive.”
Sumo chairman Ian Livingstone said: “The board of Sumo firmly believes the business will benefit from Tencent’s broad videogaming eco-system, proven industry expertise and its strategic resources, which will help secure and further the aspirations and long-term success of Sumo.
“The board of Sumo considers that the acquisition is in the best interests of all stakeholders in the company and intends to unanimously recommend this offer to shareholders.
“Tencent’s offer of 513 pence per share demonstrates the tremendous achievements of the management team, both financial and operational, since Sumo joined AIM in December 2017 at 100p per share, and provides an outstanding return for shareholders.”
Sumo CEO Carl Cavers said: “In the 18 years since we founded Sumo, we have developed more great games than we could ever have imagined and enjoyed incredible trust and support from our clients, enabling us to grow into a global business, delivering consistently strong financial results.
“From a single studio in Sheffield, Sumo now totals 14 studios in five countries, spread across the globe, with more than 1,200 people.
“Sumo is and always has been a people business and great people make great games and enjoy great times. I am proud to lead such a talented and creative group of individuals.
“The three founders of Sumo, who work in the business, Paul Porter, Darren Mills and I are passionate about what we do and are fully committed to continuing in our roles.
“The opportunity to work with Tencent is one we just couldn’t miss.
“It would bring another dimension to Sumo, presenting opportunities for us to truly stamp our mark on this amazing industry, in ways which have previously been out-of-reach.
“Tencent has a strong track record for backing management teams and their existing strategies.
“Alongside the acceleration of Own-IP work, Tencent has demonstrated its commitment to backing our client work and has stated its intention to ensure that we have the necessary investment to continue focusing on work with our key strategic partners on turn-key and co-development projects.
“We love what we do and have some amazing relationships with the world’s best videogames publishers.
“Sumo will continue to work with these clients to break new ground and create even more fantastic games.
“We look forward to strengthening our growth prospects through the application of Tencent’s strategic resources to our Own-IP, turn-key development work ambitions, and possible acquisition opportunities.
“We believe that the acquisition is in the best interests of everyone connected to the business – our shareholders, our people, and our clients – and thank all our stakeholders, past and present, for the resounding support they have given us over the years.
“The future for Sumo is more exciting than ever.“
James Mitchell, Chief Strategy Officer of Tencent said: “Tencent is pleased to have been an investor in Sumo since 2019, and we view the proposed combination as an evolution of our partnership.
“Tencent is a committed investor in the game industry, with a track record of supporting the growth of game studios around the world.
“We hold Sumo’s team and the games they produce in high regard, and its strategy and spirit of innovation have underpinned the success of the business over many years.
“Tencent intends to bring its expertise and resources to accelerate the growth of Sumo both in the UK and abroad, supporting Sumo in the market for top-tier creative talent, and the UK as a hub for game innovation.
“We believe the proposed transaction benefits all stakeholders, and delivers compelling value for Sumo shareholders, while enhancing Sumo’s capabilities for the future.”