GBC Management interview with Paul Echt, CFO of Media and Games Invest SE (news with additional features)

AUGSBURG, Germany–(BUSINESS WIRE)–06/14/2022 Management interview with Media and Games Invest SE

“We expect to continue to grow in 2022 and to benefit from market developments in the media sector. Thanks to the additional liquidity from the recent bond issue, we are also fully equipped with capital to take advantage of the current market in the area of ​​media. Mergers and Acquisitions.”

Media and Games Invest SE (MG) is an adware platform (ad technology platform) with lots of first party data from its own game content. The regional concentration of the Group’s business activities is North America and Europe. The company combines organic growth with synergistic value-creating acquisitions, resulting in an average growth rate of 77.0% (CAGR between 2018 and 2021).

At the end of last week, the technology company announced the successful placement of a new senior secured bond of 175 million euros at 98.0% of par with a floating rate coupon EURIBOR+6.25% and, in parallel , the repurchase of a senior covered bond of 115 million euros. .

In this context, we took the opportunity to interview Paul Echt, CFO of the MGI group, on the latest fundraising, the business model and the company’s prospects.

GBC AG: Mr. Echt, MGI was able to place a new bond despite the current tight market environment – ​​especially for growth and technology companies like you. What were the reasons for this move?

Paul Echt: We have no specific capital requirements because we have both strong free cash flow and sufficient cash of over €100 million. Nonetheless, the motivation was to raise additional funds now so that we could realize more M&A opportunities in the coming quarters, especially as purchase prices fell sharply due to the market environment. and – in the event of an economic downturn – are expected to fall further. In this sense, we act with foresight and from a position of strength.

For our M&A strategy, this means that we are now positioned for the coming months to be able to easily make small to medium initial payments with the cash we have. Seller loans and earn-outs (where part of the purchase price is paid at a later date based on performance) only become payable in cash or stock downstream. This means we can use existing cash to make acquisitions, using a modest level of cash at the time, while reducing short-term liquidity risk and spreading the risk of stock dilution to shareholders.

We also believe that with a strong cash position, it is always easier to discuss potential high-value M&A deals, as sellers want to know, at least in theory, whether buyers will be able to pay the purchase price, even if part of it is deferred, which is becoming increasingly relevant for sellers, especially in the current market environment.

This strategy, along with our M&A track record, is attracting strong investor interest, which is why the placement was such a success and why we decided to increase the volume of €125 million originally planned. to 175 million euros.

GBC AG: Mr. Echt, what is your overall conclusion for this transaction, especially in light of the fact that the interest coupon is 0.5% higher than that of the existing bond?

Paul Echt: The fact that the interest coupon is higher than on our existing bond, which we originally placed 98% below par with a coupon of 5.75%, reflects the changed market environment and the new reality in which we find ourselves, in which money costs more. We have to adapt to this mentally and strategically, because inflation and rising interest rates will not go away so quickly. In this context, we value the investment in the current market environment at a coupon of 6.25% per annum at 98% below par, or 0.5% per annum more than in the original bond, as a solid result.

Note that we used approximately €115 million of the €175 million to refinance parts of our existing bond, with many investors switching from our “old” bond to the new bond, with a longer maturity, thus realizing greater diversification of the maturities of our bonds, thus reducing the risk of refinancing. We have thus reduced the amount to be refinanced at the end of 2024 from 350 million euros to 235 million euros. We also did this in the context of the impossibility of predicting the evolution of the financial markets and the duration of a possible crisis. The €235 million can now be covered by our own cash flow and cash resources and reduces the overall risk profile of the business, which is positive for all our investors.

GBC AG: MGI has grown from a simple game company to an adware company with its own games. Could you explain again what exactly the current business model looks like and where the investments will be concentrated in the coming years?

Paul Echt: Over the past few years, MGI has become a rapidly growing advertising software platform that helps its clients acquire new users and monetize their advertising space. With our over 450 software customers currently, 93% of our revenue is primarily focused on the so-called “supply side”. This primarily includes mobile game companies such as King or Zynga, who use our software to monetize their in-game ad space. In addition, with our extensive games portfolio, which also includes the recent acquisition of mobile game developer “AxesInMotion”, we have a very large number of our own advertising spaces as well as high-quality user data. This makes us very interesting for advertisers. In this context, we now want to invest more in the so-called “demand side”, which currently represents only 7% of the Group’s turnover. This means we want to build more direct relationships with advertisers and agencies that place ads through our own campaign management tool (a demand-side platform). This in turn would mean that we would be less dependent on third-party demand-side platforms such as Trade Desk that bid on our supply from our own ad spaces and other companies such as Zynga or King, so that we could increase again our margin considerably as we represent an even larger part of the value chain. To achieve this, we hired significantly more sales staff in the first quarter, particularly in the United States. The goal is to build even more direct customer relationships with major advertisers in the United States. At the same time, we also want to invest more in demand-side platforms in order to buy direct customer contracts with large advertisers through mergers and acquisitions, where we can then achieve very strong synergies with our existing supply side. Of course, the recent bond issue will also help us finance this strategy.

GBC AG: Given the uncertainties regarding an ongoing Corona pandemic, the expansion of the war in Ukraine and a further intensification of inflation, there is a risk of a significant cooling of the global economy or even recessionary developments. How stable or resilient do you consider your industry and business model to be in a recession?

Paul Echt: If you look at all the indicators, from our point of view there is a risk of recession. If so, advertisers’ media budgets are likely to be affected as well, as companies can make relatively quick and flexible cuts in this area. This was seen, for example, in the second quarter of 2020, when Covid had a significant impact on the advertising budgets of certain companies in particularly affected sectors.

While a recession could have a negative impact on advertising budgets, one would expect the gaming industry to once again prove very resilient and profit from it. This could be seen not only during Corona, but also in other financial crises such as 2008. The reason for this is simple; when people have more free time and, at the same time, less money at their disposal, they seek relatively inexpensive leisure, and most games are generally much cheaper than an evening at a restaurant, theater or a concert.

Given that in addition to our revenue from our own games, approximately 70% of our adware revenue comes from digital gaming and entertainment customers, we have, in our view, a relatively resilient business model compared to to other companies in the advertising industry that are less focused on games and entertainment and do not have their own games business. Additionally, we expect the trend of spending advertising budgets on programmatic advertising – at the expense of more traditional forms of advertising – to further accelerate.

However, it is not yet possible to realistically assess the effect that a prolonged recession will have on our media activities. It is possible that this activity will grow a little less strongly, but we will seek to compensate for this through investments, particularly in the field of data.

GBC AG: Recently, the MGI Group again recorded a strong first quarter for the current financial year 2022. What can investors expect from your company in the current fiscal year? What advice did you give yourself?

Paul Echt: We plan to continue our growth in 2022 and to benefit from market developments in the media sector – moving away from identifiers and cookies. Even in the perspective of a possible recession, we did not revise our growth objectives downwards in our quarterly report but remain positive on the rest of the year for the reasons already mentioned. We want to increase turnover by 17 to 25% between 295 and 315 million euros and increase EBITDA by 17 to 31% between 83 and 93 million euros. We were able to exceed the revenue target in the first quarter of 2022. Revenue growth was 27% and adjusted EBITDA improved by 30%, thanks to organic growth. We also acquired the highly profitable AxesInMotion in April. Other M&A transactions are not included in our full-year outlook.

GBC: Thank you very much for the interview.

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