Fantasy Yueyou's valuation rose by 1.5 billion yuan in 5 months, and its performance is controversial over 1 billion yuan in three years

The main game "Divine Comedy", the main game of Fantasy Comedy, accounted for 95.65% and 90.05% of Fantasy Comedy's game business revenue in 2014 and 2015 respectively, while most of the data indicators of "Divine Comedy" are basically shrinking. Tianshen Entertainment also admitted that the overall operation time of "Divine Comedy" has exceeded 5 years and has entered the second half of its life cycle.

Original title: Tianshen Entertainment plans to acquire 4.4 billion yuan in goodwill impairment risk between the two companies

. On June 21, Tianshen Entertainment announced a revised acquisition plan to acquire a 93.54% stake in game company Fantasy Yueyou by issuing shares and paying cash. Equity, and a 96.36% stake in film and television company Herun Media, with a total transaction consideration of 4.412 billion yuan. Every investment treasure reporter noticed that consecutive high-valuation acquisitions, including 2015, have plunged Tianshen Entertainment into a series of disputes such as excessive goodwill, and the exchange has also expressed concerns about this.

4.4 billion acquisition of game companies

On June 21, Tianshen Entertainment announced a revised acquisition plan to acquire a 93.54% stake in game company Fantasy Yueyou and a 96.36% stake in film and television company Herun Media by issuing shares and paying cash. The total consideration for the transaction was 4.412 billion yuan.

Tianshen Entertainment issued an announcement on June 30 stating that it received the "Notice of Acceptance of Administrative Licensing Application from the China Securities Regulatory Commission" issued by the China Securities Regulatory Commission on June 29. It believed that the application materials were complete and in line with the legal form, and decided to accept the administrative license application.

The announcement shows that using December 31, 2015 as the evaluation benchmark date, the total equity value of Fantasy Yueyou evaluated using the income method was 3.930 billion yuan, with a value-added rate of 430.76%. The final equity transaction price of Fantasy Yueyou's 93.54% was 3.676 billion yuan; The evaluation result of the total equity value of Herun Media's shareholders was 770 million yuan, with a value-added rate of 325.03%. The final transaction price of Herun Media's 96.36% equity was 742 million yuan.

It is worth mentioning that the valuation of Fantasy Yueyou, the target of this acquisition, has risen rapidly. This game company was established in November 2011 with a registered capital of only 1 million yuan. From July to December 2015, its valuation experienced three increases, and its valuation soared from 2.4 billion yuan to 3.9 billion yuan.

The reporter noted that before this transaction, Fantasy Yueyou's assets totaled 789 million yuan, of which 571 million yuan came from the goodwill formed by the acquisition of Beijing Chuju Company, accounting for 72% of the total assets. Among 25% of current assets, accounts receivable and other receivables reached 110 million yuan. Through this transaction, Tianshen Entertainment re-confirmed its goodwill of 4.122 billion yuan. Obviously, Tianshen Entertainment has a huge risk of impairment of goodwill.

What is interesting is that both target companies have given high performance gambling commitments. In this regard, Tenshen Entertainment said that many heavyweight games planned for Fantasy Games in 2016 will be launched, while online games such as "Naruto" will explode, and the performance commitments are reasonable.

Not only that, the main game "Divine Comedy" represented by Fantasy Joy Travel accounted for 95.65% and 90.05% of the revenue of Fantasy Joy Travel's game business in 2014 and 2015 respectively, while most of the data indicators of "Divine Comedy" are basically shrinking. Tianshen Entertainment also admitted that the overall operation time of "Divine Comedy" has exceeded 5 years and has entered the second half of its life cycle. Herun Media gambled on the performance of Hua Ce Film and Television in 2014, which was far from reaching its promised net profit.

The company will reconfirm goodwill of 4.1

billion yuan. In March 2015, Tianshen Entertainment successively acquired Fun, Leishang Technology and Avazu Inc at high premiums. And Shanghai Maicheng four game companies, the valuation premium is 8 to 27 times. Tianshen Entertainment intends to delve into the games, film and television fields through acquisitions, but continuous high-valuation acquisitions, high-performance bets and the potential threat of excessive goodwill to future performance have also made this acquisition highly controversial in the market.

Fantasy Yueyou's net profit attributable to shareholders of the parent company in 2014 and 2015 was 56.8602 million yuan and 78.4265 million yuan respectively. The relevant counterparties promised that Fantasy Yueyou's net profit after deducting non-recurring gains and losses from 2016 to 2018 after audit shall not be less than 269 million yuan, 350 million yuan, and 437 million yuan respectively; Herun Media's net profits in 2014 and 2015 were 35.6066 million yuan and 37.5439 million yuan respectively. The relevant counterparties promised that Herun Media would deduct non-net profits of no less than 55 million yuan, 68.75 million yuan and 85.94 million yuan respectively in 2016, 2017 and 2018.

In fact, on June 3, Tianshen Entertainment disclosed the "Report on Issuing Shares and Paying Cash to Purchase Assets and Raising Supporting Funds (Draft)". In response, the Shenzhen Stock Exchange issued a reorganization inquiry letter to Tianshen Entertainment on June 16, raising questions about issues such as the expansion of the scale of goodwill.

As of the end of 2015, the book balance of Tianshen Entertainment's goodwill was 3.664 billion yuan. After the transaction is completed, the company is expected to continue to recognize 4.122 billion yuan in goodwill. In other words, the total goodwill of Tianshen Entertainment will reach 7.786 billion yuan by then, accounting for 64.79% of Tianshen Entertainment's total assets after the transaction and 82.47% of its net assets. Enterprises need to conduct impairment testing on goodwill every year. If the acquisition target does not meet the performance standards, the impairment needs to be included in the profit and loss of the year, resulting in a significant decline in performance. Once the acquisition target fails to fulfill its performance commitments, Tianshen Entertainment will face a huge risk of impairment of goodwill.

Editor: Nancy