The valuation of the target company has increased fivefold in a year. Why did King Kong Games design the transaction structure like this?

what needs to be added is that while King Kong Games acquired 51% stake in Zhengyue Galaxy, it also acquired Tianjin Jingui 51% stake held by Huang Ke by issuing shares at a price of 397 million yuan. Similarly, Huang Ke subscribed for the increased shares with a 51% stake in Tianjin Jingui.

in less than a year, however, King Kong Games announced its intention to buy the remaining stake in Zhengyue Galaxy for all-cash.

on June 20, 2017, King Kong Games announced that it intends to pay cash to acquire the 49% stake in Zhengyue Galaxy held by Huazhong Century, with a transaction value of 123 million yuan. After the completion of this transaction, Zhengyue Galaxy will become a wholly owned subsidiary of King Kong Games.

strong > what does King Kong want to do? / strong >

introduce the counterparty first.

Acquirer: King Kong Games, mainly engaged in computer system maintenance and data security product development, production, sales and services. According to the 2016 financial report, the online game business accounts for 100% of its revenue and is a game development company.

acquiree: Zhenyue Galaxy, mainly engaged in game distribution business, has a very obvious distribution advantage in the IOS channel.

from the point of view of the business unit, King Kong Games and Zhengyue Galaxy are respectively in the upper and lower reaches of the game industry. Through the acquisition of Zhengyue Galaxy, King Kong games have a great advantage in the distribution of mobile games channels, and the cooperation is very high. It is another extension of King Kong games in the layout of the game industry chain.

at present, the synergistic effect has begun to appear. In the major asset restructuring report, it is mentioned that the rapid growth of King Kong Games in 2016 is partly due to the synergy with Zhengyue Galaxy.

"at present, the core competitiveness of King Kong games lies in the R & D capabilities of PC and mobile, while Yue Galaxy can provide support in game operation and distribution, forming a closed loop, and the layout of the upstream and downstream of the industrial chain will continue to do in the future." Li Liujun, chairman of King Kong Games, said.

strong > Why is the transaction structure designed in this way in King Kong Games? / strong >

from the point of view of the whole trading scheme, what exactly is the purpose of designing the transaction structure of King Kong Game? There may be the following points:

strong > 1. Cash acquisition is easy to audit / strong >

although the review of the new third board is relatively relaxed, since the second half of last year, the regulatory authorities have reviewed game assets more and more strictly, and cash acquisition can reduce the resistance to audit and shorten the transaction time at the same time.

according to the asset restructuring report, the major asset restructuring of King Kong Games needs to pass the review of equity conversion and the prerequisite for regulators to approve cost transactions.

strong > 2. The valuation of Zhengyue Galaxy increased fivefold, and the growth income shared by both parties / strong >

in the first acquisition, Zhengyue Galaxy was valued at 36.9459 million yuan;

in the second acquisition, Zhengyue Galaxy was valued at 245 million yuan.

in less than a year, the valuation of Zhengyue Galaxy has increased about five times. Correspondingly, the stake in King Kong Games is rising by 51% over Galaxy, which has also increased about fivefold.

at the same time, in the process of the second acquisition, Huazhong Century will not only be able to cash out some of its funds at a higher valuation, but also greatly increase its stake in King Kong Games.

the reporter will make an account for you.

in the previous transaction, King Kong Game signed "performance compensation agreements" with Huazhong Century, the former parent company of Zhengyue Galaxy, and Huang Ke, the former shareholder of Tianjin Jingui, respectively. Huazhong Century promised to deduct non-net profits of 18 million yuan, 40.55 million yuan and 42.25 million yuan in 2016, 2017 and 2018 in Yue Galaxy, and Huang Ke promised that Tianjin Jingui's non-net profit in 2016 and 2017 would not be less than 10 million yuan and 50 million yuan.

Dongcai choice shows that King Kong recorded a net profit of 72.9649 million yuan belonging to the owner of the parent company in 2016.

according to a simple estimate, the profit of King Kong Game may reach 139 million yuan in 2017. According to the PE calculation of about 30 times that of the game company on the new third board, the valuation of King Kong Games could reach 4.17 billion yuan in 2017.

correspondingly, the market value of 2.83% of King Kong Games held by Huazhong Century, the former parent company of Zhengyue Galaxy, is about 118 million yuan.

generally speaking, it is a win-win trading scheme.

strong > dialogue King Kong Game Chairman Li Liujun / strong >

Reporter: judging from the 2016 financial results, the financial situation of King Kong Games is very beautiful. Is there any IPO expectation for King Kong Games in the future, or go to the Hong Kong stock market or US stock market?

Li Liujun: the docking of the capital market is under consideration. On the one hand, we are waiting to see whether the third board policy and dividends can be issued; on the other hand, we are also looking at some other opportunities, such as IPO, mergers and acquisitions, and so on.

Reporter: because seeing that King Kong game has financed several times in the third board, compared with most listed companies, King Kong game has a very good life. For now, can the market of the new third board meet the demands of King Kong games?

Li Liujun: it should not meet our needs, but we are the beneficiaries of the third board. We have carried out a series of capital operations, such as targeted additional issuance, mergers and acquisitions, and so on, from tens of millions of market capitalization at the beginning to billions of dollars now. It can be said that the development is very fast, which has a lot to do with our industry, King Kong game qualification and capital operation ability.

Edit: mary