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Granite Bay Capital

An innovation focussed investment company

Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

Thematic (Sector/Industry)

<h2>Headline Developments</h2>Steam, the video game distribution platform owned by Valve (private) , has released the long-rumoured handheld gaming device the Steam Deck; available from December (although big delays are expected with the premium $649 512GB version not available until 3Q22!).

Headline DevelopmentsSteam, the video game distribution platform owned by Valve (private) , has released the long-rumoured handheld gaming device the Steam Deck; available from December (although big delays are expected with the premium $649 512GB version not available until 3Q22!).

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 19 July, Sixjoy Hong Kong Limited, a bidco subsidiary of <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and the Board of <a href="https://www.smartkarma.com/entities/sumo-group-plc" target="_blank" data-smartkarma-citation="entities:33770:1" rel="noopener">Sumo Group (SUMO LN)</a> reached an agreement to acquire a 91.25% stake in Sumo for 513p/share to be effected by means of a scheme of arrangement.
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For an implied equity value of £918.8 mn (as reported) and an implied EV of £925.7 mn.
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8.9x EV/Fwd Revenue, 38.8x EV/Fwd EBITDA and 57.0x P/Fwd EPS.
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This is more generous than the 8x EV/Fwd EBITDA that Tencent offered for <a href="https://www.smartkarma.com/entities/funcom-se" target="_blank" data-smartkarma-citation="entities:28819:1" rel="noopener">Funcom NO (FUNCOM NO)</a>, or the 9x EV/Fwd EBITDA for a stake in <a href="https://www.smartkarma.com/entities/ubisoft-entertainment" target="_blank" data-smartkarma-citation="entities:21564:1" rel="noopener">UBISOFT Entertainment (UBI FP)</a>.
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<li>The irrevocable undertakings received plus the stake of Tencent represent in aggregate 35.7% of the share capital of Sumo.</li>
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Tencent's deep pockets will allow Sumo to increase the resources to increase scale and finance new game projects. Moreover, Sumo would greatly benefit from Tencent's know-how in its international expansion plans.
Transaction is subject to approval from shareholders of Sumo Group, third party clearance, the sanction of the scheme by the Court, the receipt of antitrust clearances in the United Kingdom and United States and a foreign-direct investment approval under the CFIUS regime in the United States (or lapsing of the applicable waiting periods), and other customary conditions.
The offer is in line with the European comparables median of 8.4x EV/Fwd Revenue. On this basis, the offer looks fair. Given both the irrevocable undertakings, the stake of Tencent, and the premium offered, a counteroffer seems highly unlikely.
This is a rock-solid trade, in my view. Completion should take place in about five months. On 19 July, the shares closed at 503p, a 40.5% increase. Gross spread is 1.95%, around 4% annualised.
Recommendation is long SUMO LN, TP 513p.

On 19 July, Sixjoy Hong Kong Limited, a bidco subsidiary of Tencent (700 HK) and the Board of Sumo Group (SUMO LN) reached an agreement to acquire a 91.25% stake in Sumo for 513p/share to be effected by means of a scheme of arrangement.


For an implied equity value of £918.8 mn (as reported) and an implied EV of £925.7 mn.


8.9x EV/Fwd Revenue, 38.8x EV/Fwd EBITDA and 57.0x P/Fwd EPS.


This is more generous than the 8x EV/Fwd EBITDA that Tencent offered for Funcom NO (FUNCOM NO), or the 9x EV/Fwd EBITDA for a stake in UBISOFT Entertainment (UBI FP).



The irrevocable undertakings received plus the stake of Tencent represent in aggregate 35.7% of the share capital of Sumo.

Tencent's deep pockets will allow Sumo to increase the resources to increase scale and finance new game projects. Moreover, Sumo would greatly benefit from Tencent's know-how in its international expansion plans.
Transaction is subject to approval from shareholders of Sumo Group, third party clearance, the sanction of the scheme by the Court, the receipt of antitrust clearances in the United Kingdom and United States and a foreign-direct investment approval under the CFIUS regime in the United States (or lapsing of the applicable waiting periods), and other customary conditions.
The offer is in line with the European comparables median of 8.4x EV/Fwd Revenue. On this basis, the offer looks fair. Given both the irrevocable undertakings, the stake of Tencent, and the premium offered, a counteroffer seems highly unlikely.
This is a rock-solid trade, in my view. Completion should take place in about five months. On 19 July, the shares closed at 503p, a 40.5% increase. Gross spread is 1.95%, around 4% annualised.
Recommendation is long SUMO LN, TP 513p.

United Kingdom

Sumo Group PLC develops video game software. The Company provides turnkey and co-development solutions, including initial concept and pre-production, production development, and post-release support. Sumo Group serves customers worldwide.

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Sumo Group (SUMO LN)

Weekly Innovation Review (WIRE) #41

Headline Developments: Steam , the video game distribution platform owned by Valve (private), has released the long-rumoured handheld gaming device...

Granite Bay Capital

Tencent/Sumo: Recommended Cash Offer

This is a rock-solid trade, 1.9% gross spread, c.4% annualised. Completion should take place in about five months. On 19 July, the shares closed at...

Jesus Rodriguez Aguilar

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