Stillfront Group acquires Jawaker and continues expansion in the MENA region

Abu Dhabi: Stillfront Group AB (publ) has entered into an agreement to acquire 100 percent of the shares in Jawaker FZ LLC (“Jawaker”) for a total upfront consideration of USD 205 million on a cash and debt free basis (the “Transaction”). Jawaker a leading mobile gaming studio in the MENA region, founded in 2009, holds one of the largest classic PvP (Player versus Player) gaming apps in the world, with a focus on board & card games and other popular games specific to the region. The sellers of Jawaker are the founders and main owners, the investment company Media Zone Investments FZ LLC (“twofour54”) and certain employees. Jawaker is headquartered in Abu Dhabi, the UAE, with a team of approximately 50 people. To finance a part of the Transaction, Stillfront’s Board of Directors has decided to raise additional equity through a directed share issue of SEK 1,000 million.

TRANSACTION IN BRIEF

• The total upfront consideration for the acquisition of 100 percent of the shares in Jawaker amounts to USD 205 million on a cash and debt free basis (the “Upfront Purchase Price”).
• Of the Upfront Purchase Price, 74 percent is payable in cash, and 26 percent is payable in 8,540,092 newly issued shares in Stillfront.
• Certain sellers may receive an earn-out payment of up to USD 20 million payable in cash, if Jawaker reaches certain EBIT targets for 2021. The earn-out payment for 2021 will be zero for the midpoint of the expected EBIT range for 2021 described below. In addition, certain sellers may receive additional earn-out payments of 1.0x EBIT for each of the financial years 2022, 2023, 2024, 2025 and 2026 whereof 70 percent is payable in cash and 30 percent in newly issued shares in Stillfront.
• Jawaker has preliminary unaudited IFRS converted net revenue and adjusted EBIT for the period H1 2021 of approximately SEK 132 million and approximately SEK 82 million respectively.
• Jawaker is expected to generate net revenue of approximately SEK 270-310 million, with approximately SEK 180-210 million in adjusted EBIT, for the calendar year 2021.
• The Upfront Purchase Price is equivalent of approximately 8.9x Jawaker’s forecasted and unaudited adjusted EBIT for the calendar year 2021, assuming a mid-range EBIT for 2021.
• The acquisition of Jawaker will further strengthen Stillfront’s presence in the strategically important and fast-growing MENA region, as well as further broaden Stillfront’s games portfolio and fuel future organic growth. Further, the acquisition will enable substantial scaling and collaboration potential within Stillfront’s group of studios.
• To finance a part of the Transaction, Stillfront’s Board of Directors has decided to raise additional equity through a directed share issue of SEK 1,000 million in the form of an accelerated book building procedure which is announced separately in connection with this press release
• Completion of the Transaction is expected to occur on October 4, 2021.

“Stillfront has been active in the MENA region since 2016 and we continue to be impressed by the amazing talents and strong growth that we have seen in the region over the past five years. Mohamad and the Jawaker team have built an impressive studio adopting a one-app approach that allows users to play several different games within one app, while connecting with friends and socializing, creating strong engagement and loyalty within the user base. With the acquisition of Jawaker, we add a fast-growing and highly profitable studio to the group, and further strengthen our presence in the strategically important MENA region. We see significant scaling potential for Jawaker as a part of Stillfront, with opportunities to fuel user acquisition both in the MENA region and among the Arabic speaking population worldwide, leveraging Stillfront’s successful experience from marketing Babil’s games. Jawaker’s expertise in the region is complementary to Babil’s in terms of both genre mastery and regional reach, making them a perfect strategic fit for Stillfront and creating several growth opportunities going forward”, says Jörgen Larsson, CEO, Stillfront.

“From its humble beginnings 12 years ago, Jawaker has always maintained its belief that steady profitable growth can achieve meaningful results over the long term. The best investment we made over the years was in our culture. This created the environment that unlocked the potential of our truly inspirational team who made Jawaker what it is today. The overwhelming feeling now is one of new beginnings within the Stillfront family. We are so excited to be joining an organization that shares our belief in making long term investments and creating a forever franchise in our genre of games”, says Mohamad Hasan”, Co-founder and CEO of Jawaker.

“With investments in leading online gaming companies like Jawaker, twofour54 is once again demonstrating that it is a pioneer of the regional gaming industry. This deal is just one more demonstration that the Emirate’s gaming sector is moving from strength to strength, and through the AD Gaming initiative, Abu Dhabi remains committed to driving its growth in the years to come,” says Michael Garin, CEO of twofour54.

BACKGROUND AND TRANSACTION RATIONALE
The acquisition of Jawaker is an important step in Stillfront’s ambition to build the leading free-to-play powerhouse of gaming studios. The acquisition will further strengthen Stillfront’s presence in the strategically important and fast-growing MENA region, as well as broaden Stillfront’s games portfolio, fuel future organic growth and enable substantial scaling and collaboration potential within Stillfront’s group of studios.

Founded in 2009, Jawaker is a leading and highly profitable mobile gaming studio in the MENA region, with one of the largest classic PvP gaming apps in the world. The studio focuses on board & card games and other popular games specific to the region. Jawaker has built a strong presence in the fast-growing MENA region, supported by its regional reseller network, which creates a strong competitive advantage and entry barrier. The majority of the studio’s revenues are generated from the MENA region, but it also has a significant share of revenue from the Arabic diaspora in Europe and North America.

The Jawaker app is a single hub for +30 games and allows users to play, connect with friends, join clubs and socialize. The one-app approach bundles a high number of players in one ecosystem, which supports cross promotion between titles within the app and strengthens retention. Today, more than 50% of Jawaker’s users play two or more different games within the app every week. The successful one-app approach eases future cross-promotion activities and supports Stillfront’s strategic initiative to keep more traffic within Stillfront’s own ecosystem.

The acquisition of Jawaker will enable significant scaling potential as a part of Stillfront and solidify the company’s strong position in the MENA region. Based on Stillfront’s successful experience from marketing Babil’s games, Stillfront sees a large potential for increasing user acquisition spend in both the MENA region and worldwide within the Arabic speaking population. Jawaker’s regional expertise in the MENA region is complementary to Babil from genre, local reach and revenue model perspectives, opening up for more synergies and scaling of Stillfront’s titles in the MENA region. Stillfront also sees a large potential to scale Jawaker’s games internationally in Western countries and the Indian subcontinent using Stillfront’s expertise in performance marketing and localization.

THE TRANSACTION
The Transaction involves the acquisition of 100 percent of the shares in Jawaker, completion of which is expected to occur on October 4, 2021. Jawaker will be consolidated into Stillfront’s consolidated financial reporting from October 1, 2021.

Upon completion of the Transaction, USD 205 million on a cash and debt free basis will be payable to the sellers. Of the USD 205 million in upfront consideration, 74 percent is payable in cash and 26 percent is payable in 8,540,092 newly issued shares in Stillfront. The newly issued shares in Stillfront will be issued based on the mandate to the board of directors of Stillfront granted at the Annual General Meeting held on May 11, 2021. The number of shares in relation to the Upfront Purchase Price has been calculated using the volume weighted average price per share in Stillfront traded on Nasdaq Stockholm during the twenty trading days up to and including September 6, 2021 converted into USD at the average exchange rate between SEK and USD of the Swedish Central Bank (Sw. Riksbanken) published at https://www.riksbank.se/en-gb/ during the same period, i.e. the subscription price per share related to the Upfront Purchase Price amounts to SEK 54.140. This corresponds to a dilution of 2.3 percent on a fully diluted basis (i.e. based on the total number of shares and votes outstanding after the share issue). The minority owner, Media Zone Investments FZ LLC “twofour54” will only receive upfront cash consideration for its shares in Jawaker.

Certain sellers may receive an earn-out purchase price payment of up to USD 20 million, payable in cash, if Jawaker reaches certain EBIT targets for 2021. The earn-out payment for 2021 will be zero for the midpoint of the communicated expected EBIT range for 2021. In addition, certain sellers may receive earn-out purchase price payments corresponding to 1.0x EBIT for each of the financial years 2022, 2023, 2024, 2025 and 2026 generated in the ordinary course of business during each of those years. The earn-out consideration for 2022-2026 is payable 70 percent in cash and 30 percent in newly issued shares in Stillfront. The subscription price for newly issued shares related to the earn-out purchase price (if any) will be based upon the volume weighted average price of the shares in Stillfront traded on Nasdaq Stockholm for a period of ten trading days up to and including the day before Stillfront’s announcement of financial results for the applicable earn-out period converted into USD at the average exchange rate between SEK and USD of the Swedish Central Bank (Sw. Riksbanken) published at https://www.riksbank.se/en-gb/ during the same period.

The 8,540,092 newly issued shares in Stillfront that are to be issued as part of payment of the Upfront Purchase Price are subject to customary transfer restrictions during a period from receipt of such shares until eighteen months thereafter. The newly issued shares in Stillfront that are to be issued to the earn-out sellers as part of payment of the earn-out purchase price payments are subject to customary transfer restrictions for a period of twelve months from receipt of such shares.

To finance a part of the Transaction, Stillfront’s Board of Directors has decided to raise additional equity through a directed share issue of SEK 1,000 million in the form of an accelerated book building procedure which is announced separately in connection with this press release.

Completion of the Transaction is subject to customary completion conditions.

The founders and other key employees will remain within Jawaker and be part of the management of Jawaker post-completion of the Transaction.

PRELIMINARY UNAUDITED FIGURES FOR JAWAKER FOR JANUARY- JUNE 2021
The below presented preliminary unaudited financials are solely intended to describe the financial situation of Stillfront post-closing of the Transaction. All figures are preliminary and unaudited. Jawaker has USD as its reporting currency. The USD figures have been translated into SEK by using the average FX rate for the period of January to June 2021, with USD/SEK at 8.4039.

Jawaker has preliminary IFRS net revenue of approximately SEK 132 million and adjusted EBIT of approximately SEK 82 million for the period January-June 2021.

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UNAUDITED FORECAST FIGURES FOR JAWAKER FOR THE FULL YEAR 2021
The below presented unaudited forecast figures are solely intended to describe the hypothetical financial situation of Jawaker and to display the potential financial growth of Jawaker. The financial assumptions are based on Jawaker’s management accounts and projected growth. All figures are preliminary and unaudited.

Jawaker is expected to generate net revenue of approximately SEK 270-310 million with approximately SEK 180-210 million in Adjusted EBIT for the calendar year 2021[4].

TRANSACTION COSTS
Stillfront’s transaction expenses are estimated at SEK 17 million for the Transaction, accounted for in EBIT during Q3, and SEK 15 million for the directed share issue, accounted for directly in equity.

FINANCIAL AND LEGAL ADVISORS
DLA Piper is legal advisor and EY is financial and tax due diligence advisor for Stillfront in connection with the Transaction. Latham Watkins is legal advisor and Aream & Co is financial advisor to the sellers in connection with the Transaction.

Carnegie Investment Bank AB (publ) and Joh. Berenberg, Gossler & Co. KG (jointly the "Managers") are acting as Joint Global Coordinators with regards to the directed share issue. Gernandt & Danielsson Advokatbyrå KB is acting as legal advisor for Stillfront in connection with the directed share issue. Baker & McKenzie Advokatbyrå KB is acting as legal counsel to the Managers.

CONFERENCE CALL FOR INVESTORS, ANALYSTS AND MEDIA
Representatives of Stillfront will participate in a conference call on September 9, at 08.30 CEST. To participate, please use the details set out below.

To participate by telephone, please dial:
SE: +46856642706
UK: +443333009268
US: +16467224957

-Ends-

© Press Release 2021