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Aleksandr Grechanyuk/Dreamstime
A pair of former RuneScape executives want to bring the next big thing in entertainment public. They have two years and a war chest of several hundred million dollars.
Ascendant Digital Acquisition (ticker: ACND.U), a new special-purpose acquisition company, or SPAC, went public on Friday, raising $360 million in an oversubscribed offering. Its goal is to find a merger target in the booming “attention economy,” with a particular focus on video games.
Ascendant’s units rose 3.1% on Friday, to close their first day on the New York Stock Exchange at $10.31.
SPACs go public as cash shells, and have a defined time period in which to combine with an operating company, which has an IPO in the process. Investors are betting on the deal sourcing and deal making abilities of the SPACs sponsor to close an attractive transaction. This year has been huge for SPACs, on pace for records in the number of IPOs, funds raised, and deals completed.
Ascendant’s CEO Mark Gerhard has held executive roles at game developers and cybersecurity firms in the past. He cut his teeth in the gaming industry while serving as CTO and later CEO at Jagex—the parent company of the hugely popular online fantasy game RuneScape.
COO Riaan Hodgson was a chief operating officer and chief financial officer at Jagex. Gerhard said in an interview with Barron’s that RuneScape was a pioneer for many of the monetization trends dominating the industry, like microtransactions for cosmetic items and subscriptions. He thinks his SPAC is equipped to push the medium further.
Gerhard sees Ascendant as the first step in a line of acquisitions to build an “entertainment company of the future” that can start with an attractive portfolio of intellectual property and build it out on multiple platforms.
That could mean starting with a weekly linear TV or streaming show, selling trading cards, adding a mobile game based on the same world, a series of comic books, and more. Echoing comments from
Netflix
(NFLX) CEO Reed Hastings, Gerhard sees video games like Fortnite competing for attention with over-the-top streaming services.
“There are only so many hours you have in the day, as much as we hate that fact,” Gerhard says. “So it’s not about the platform, it’s about attention and where you spend your time with an IP.”
A first target for Ascendant will likely be in the world of interactive entertainment or gaming, given Gerhard and other directors’ backgrounds.
“We’re looking for IP that’s established, stuff with high engagement, large communities—even if the revenues aren’t large,” Gerhard says. “If we know that there’s a following, we know we can build on that.”
Gerhard noted his firm will look to build a portfolio of wholly owned properties, rather than license big brands from larger entertainment firms.
AT&T
(T) is reportedly shopping its gaming unit, but many of its popular titles would be licensed from its Warner Bros properties, like Batman. Instead, Gerhard likened his ambitions to building the next IP-powerhouse like
Walt Disney
(DIS).
“We’re going to be investing in this very heavily,” he said. “I think in many cases, we might even be creating new genres here, a new way that people engage with their entertainment. And I really think we want to have as much as possible. Of course, there’s some amazing ideas out there, but I’d rather buy the entire business and leverage that IP, than give 10% back to someone for perpetuity.”
Like most SPACs, Ascendant sold IPO investors $10 units consisting of a common share and a fraction of a warrant, exercisable at $11.50. (The units split and shares and warrants become tradeable individually within a few months of the IPO.) Ascendant’s units included one-half of a warrant each. That’s on the high end of recent SPAC IPOs, with serial SPAC issuers and bigger-name sponsors able to offer a quarter or even a fifth of a warrant. More warrants per unit represent additional dilution for stock in the post-SPAC merger company. That can sometime be a deal breaker for sellers with multiple options.
The most obvious risk is that Gerhard and Ascendant aren’t the only players in the market looking to acquire upstart game developers and attractive IP. The likes of
Electronic Arts
(EA),
Activision Blizzard
(ATVI), or
Take-Two Interactive Software
(TTWO) all have deep pockets and could be competitive acquirers in the space. But Gerhard argues that his and the Ascendant team’s backgrounds, connections, and developer focus will give them access to potential deals that the big videogame companies won’t get to see.
Gerhard says that he and his team already have a shortlist of 75 companies they plan on reaching out to in the coming weeks. SPACs tend to do deals with an enterprise value of three or four times their cash, implying a transaction valued at $1.5 billion to $2 billion. Ascendant has a forward purchase agreement from Japanese video game developer
Nexon
(3659.Japan) for up to $250 million at the time of its eventual merger, in addition to the $360 million in its trust.
That increases the SPAC’s potential war chest, even if a portion of shareholders exercise their right to redeem shares for their trust value down the road. But Nexon’s FPA is also a vote of confidence in Ascendant’s ability to agree an attractive deal.
As with any SPAC, time will tell. But Ascendant has big goals in an attractive niche, without any competing SPAC focused on the same target area. In a hot year for SPACs, that’s certainly an advantage.
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