Stillfront Group acquires Candywriter, LLC and discloses updated pro forma figures for 2019

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Press release

Stockholm

20200423

[INSIDE INFORMATION:] Stillfront Group AB (publ) ("Stillfront"), a leading free-to-play powerhouse of gaming studios, today announced the signing of an agreement to acquire Candywriter, LLC, a US based mobile games developer and publisher focusing on casual and mash-up games, for an upfront consideration of approx. USD 74.4 million on a cash and debt free basis, of which USD 37.5 million is payable in 708,463 newly issued shares in Stillfront and the remaining approx. USD 36.9 million is payable in cash.

Further, an earn-out consideration may be payable by Stillfront in an aggregate maximum total amount of USD 120.6 million on a cash and debt free basis, out of which 50% shall be paid in cash and 50% in newly issued shares in Stillfront. The ultimate size of the yearly earn-out component will depend on the EBIT development of Candywriter for the financial years 2020, 2021 and 2022. The total purchase price payable by Stillfront cannot exceed USD 195 million. 

Candywriter has approx. 1.2 million DAUs and 7.8 million MAUs and the flagship title is BitLife, an innovative text-based life simulation game. BitLife was among the top 5 most downloaded games on iOS in 2019 and is currently in a strong growth phase. Candywriter has several other successful legacy apps in its portfolio, including Adult Coloring Book and word games Letter Soup and Letter Fridge. Candywriter is based in Miami, US.

Candywriter generated revenue of approx. USD 26 million, with approx. 59% in EBIT margin for the financial year 2019. Candywriter, which offered one of the first 552 apps when the iOS App Store launched in 2008, was founded in 2006 by Kevin O’Neil and Nadir Khan, the sole ultimate owners, both of whom will remain active as the key management team of the company going forward.

“The acquisition of Candywriter is an excellent next step in further broadening our diversified portfolio, both in terms of genre, audience and addressable market. Candywriter has developed a number of interesting apps and casual games since 2006 and with BitLife, they have created a unique game in the market, with 42m downloads to date. We look forward to merging our capabilities in different areas. The conservative total implied EV/EBIT multiple, should be seen in context of expected high growth. The synergy and growth potential are high”, says Jörgen Larsson, CEO, Stillfront.

"Teaming up with Stillfront is an exciting next step in the evolution of our company. The group's high degree of proficiency in areas like localization, business intelligence, and development at scale is a perfect complement for our growing needs. We look forward to working with the group to blaze new trails in the interactive narrative genre and beyond", says Kevin O'Neil and Nadir Khan, Joint Founders and Owners of Candywriter.

THE TRANSACTION

The transaction involves the acquisition of 100% of the shares in Candywriter and completion of the acquisition is expected to occur end of April 2020 (the "Transaction").

The company will be consolidated into Stillfront’s consolidated financial reporting from 1 May 2020.

Upon completion of the acquisition, approx. USD 74.4 million on a cash and debt free basis will be paid to the sellers, of which USD 37.5 million is payable in 708,463 newly issued shares in Stillfront and the remaining approx. USD 36.9 million is payable in cash. The newly issued shares will be issued based on the mandate resolved at the extraordinary general meeting held in February 2020. The number of consideration shares that corresponds to USD 37.5 million has been calculated using the volume weighted average price per share in Stillfront traded on the Nasdaq First North Premier Growth Market exchange during the seven trading days preceding the date hereof (excluding the date hereof) 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 consideration share amounts to SEK 530.49. This corresponds to a dilution of 2.19% on a fully diluted basis (i.e. based on the total number of shares and votes outstanding after the share issue). The purchase price payable upon completion of the acquisition will be subject to adjustment based on the cash, financial debt, Transaction expenses and the difference between target and actual net working capital of the company as at the date of completion of the Transaction. The adjustment amount is payable by the sellers or Stillfront (as the case may be) in cash.

Further, an earn-out consideration may be payable by Stillfront in an aggregate maximum total amount of USD 120.6 million on a cash and debt free basis, out of which 50% shall be paid in cash and 50% in newly issued shares in Stillfront. If eligible, the earn-out consideration will be payable annually following the approval of each of the audited annual reports for the financial years ending 31 December 2020, 2021 and 2022. The ultimate size of the yearly earn-out component will depend on the EBIT development of Candywriter for the relevant financial year. The total purchase price payable by Stillfront cannot exceed USD 195 million.

The cash portion of the purchase price payable upon completion is intended to be financed by cash at hand and available credit facilities and the adjustment consideration (if any) as well as the cash portion of the earn-out consideration (if any) is intended to be financed through internal cash generation and available credit facilities. The subscription price for newly issued shares related to the earn-out consideration (if any) will be based upon the volume weighted average price of the shares in Stillfront traded on Nasdaq Firth North Premier Growth Market for a period of ten trading days prior to Stillfront’s announcement of financial results for the applicable earn-out period and for purposes of determining the number of shares in Stillfront to be issued, the volume weighted average price of the shares in Stillfront in SEK shall be 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 ten day period set forth above.

The 708,463 newly issued shares in Stillfront that are to be issued to the sellers upon completion of the Transaction are subject to customary transfer restrictions during a period of eighteen months from the date of receipt of the same. The additional shares received by the sellers as part of the earn-out consideration are subject to customary transfer restrictions during a period of twelve months from the date of receipt of the same.

UNAUDITED CONDENSED PRO FORMA INFORMATION

A preliminary pro forma consolidated condensed balance sheet per 31 December 2019 is presented below with the purpose of describing the financial situation after the Transaction. The pro forma consolidated condensed balance sheet is solely intended to describe the hypothetical situation of the new group as if the Transaction had been completed as of 31 December 2019, based on Stillfront’s and Candywriter’s financial situation as of 31 December 2019. Storm8, that was acquired by Stillfront on 28 February 2020 is also included as if completion of Stillfronts acquisition of Storm8 had been completed as of 31 December 2019. Candywriter has thus far had USD as its reporting currency. The USD figures have been translated to SEK using the closing FX-rate at 31 December 2019, with USD/SEK at 9.32. Stillfront has carried out a preliminary IFRS conversion of Candywriter's financial position for the purposes of the pro forma financial statements. All numbers are preliminary and unaudited.[1]

A preliminary condensed pro forma income statement for the twelve months ended 31 December 2019 is shown below, with the purpose of describing a hypothetical financial result as if the Transaction had been completed per 1 January 2019. Storm8, that was acquired by Stillfront on 28 February 2020, is also included as if completion of Stillfronts acquisition of Storm8 had been completed as of 1 January 2019. No synergies have been taken into consideration. Candywriter has thus far had USD as its reporting currency. The USD figures have been translated to SEK using the average FX-rate for the period 1 January 2019 – 31 December 2019, with USD/SEK at 9.46. Stillfront has carried out a preliminary IFRS conversion of Candywriter's financial result for the purposes of the condensed pro forma financial statements. All numbers are preliminary and unaudited.[2]

Stillfront has not completed the detailed valuation analyses necessary to arrive at the final estimates of the fair market value of the assets to be acquired and the liabilities to be assumed in connection with the acquisition of Candywriter or those acquired in connection with the acquisition of Storm8. The preliminary allocation of the consideration for the acquisition used in this unaudited condensed preliminary pro forma information is based upon Stillfront’s preliminary estimates at the date of preparation of this preliminary pro forma information. As a result of the finalization of this allocation after the acquisition’s final completion, Stillfront expects to make adjustments to the acquisition analysis, where some of these adjustments could be material. Differences between the preliminary and the final acquisition analysis could have a material impact on Stillfront’s pro forma financial performance.

CONDITIONS FOR THE COMPLETION OF THE TRANSACTION

Stillfront’s acquisition of Candywriter is conditional upon customary closing conditions, including no order being issued by any governmental entity and no injunction being issued preventing the consummation of the Transactions, a warranty and indemnity insurance being issued, all warranties being true in all material respects, no founder employee agreement shall have been revoked by any founder and that there shall not have occurred a material adverse effect since January 1, 2020.

STILLFRONT AND CANDYWRITER COMPANY PRESENTATION

A company presentation in respect of Stillfront and Candywriter containing information regarding, but not limited to, Candywriter stand-alone financials and key performance indicators for the period until 31 December 2019, which has not previously been disclosed to the general public is attached to this press release and will be published on Stillfront’s website, www.stillfront.com, section Investors/Company.

FINANCIAL AND LEGAL ADVISORS

DLA Piper is legal advisor and EY is due diligence advisor to Stillfront in the Transaction. Agnitio Capital is financial advisor and Perkins Coie is legal advisor to Candywriter and its sellers in connection with the Transaction.

CONFERENCE CALL FOR INVESTORS, ANALYSTS AND THE MEDIA

Representatives of Stillfront will participate in a conference call on April 24, at 13.00 CEST. To participate, please use the details set out below.

To participate by telephone, please dial;

SE +46 8 505 583 53 

UK: +44 33 330 090 35

US: +1 8 335 268 382

To participate via audiocast;

https://tv.streamfabriken.com/2020-04-24-stillfront

For additional information, please contact:

Jörgen Larsson, CEO, Stillfront Group

Phone: +46 70 321 18 00

E-mail: jorgen@stillfront.com

This information is information that Stillfront Group AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 23.40 CEST on 23 April 2020.

About Stillfront

Stillfront is leading free-to-play powerhouse of gaming studios. Our diverse and exciting games portfolio has two common themes; loyal users and long lifecycle games. Organic growth and carefully selected and executed acquisitions embody our growth strategy and our 750 co-workers thrive in an organization that engenders the spirit of entrepreneurship. Our main markets are the US, Germany, MENA, France and UK. We are headquartered in Stockholm, Sweden and the company, is listed on Nasdaq First North Premier Growth Market. 

For further information, please visit: stillfront.com

Certified Adviser: 

FNCA, Phone: +46 8 528 00 399 E-mail: info@fnca.se

IMPORTANT INFORMATION

The release, announcement or distribution of this press release may, in certain jurisdictions, be subject to restrictions.  The recipients of this press release in such jurisdictions, in which this press release has been released, announced or distributed, should inform themselves of and follow such restrictions. The recipient of this press release is responsible for using this press release, and the information contained herein, in accordance with applicable rules in each jurisdiction. This press release does not constitute an offer, or a solicitation of any offer, to buy or subscribe for any securities in Stillfront in any jurisdiction, neither from Stillfront nor from someone else.

This press release does not identify or suggest, or purport to identify or suggest, the risks (direct or indirect) that may be associated with an investment in the new shares. Any investment decision in connection with the Share Issue must be made on the basis of all publicly available information relating to the Company and the Company’s shares. Such information has not been independently verified by the Managers. The information contained in this press release is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this press release or its accuracy or completeness. The Managers are acting for the Company in connection with the Transaction and no one else and will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for giving advice in relation to the Transaction or any other matter referred to herein.

This press release does not constitute a recommendation concerning any investor’s option with respect to the Share Issue. Each investor or prospective investor should conduct his, her or its own investigation, analysis and evaluation of the business and data described in this press release and publicly available information. The price and value of securities can go down as well as up. Past performance is not a guide to future performance.

This press release does not constitute or form part of an offer or solicitation to purchase or subscribe for securities in the United States. The securities referred to herein may not be sold in the United States absent registration or an exemption from registration under the US Securities Act of 1933 (the "Securities Act"), as amended, and may not be offered or sold within the United States absent registration or an applicable exemption from, or in a Transaction not subject to, the registration requirements of the Securities Act. There is no intention to register any securities referred to herein in the United States or to make a public offering of the securities in the United States. The information in this press release may not be announced, published, copied, reproduced or distributed, directly or indirectly, in whole or in part, within or into, Australia, Canada, Japan, Hong Kong, New Zealand, Singapore, South Africa, Switzerland, the United States or in any other jurisdiction where such announcement, publication or distribution of the information would not comply with applicable laws and regulations or where such actions are subject to legal restrictions or would require additional registration or other measures than what is required under Swedish law. Actions taken in violation of this instruction may constitute a crime against applicable securities laws and regulations.

This announcement is not a prospectus for the purposes of Regulation (EU) 2017/1129 (the "Prospectus Regulation") and has not been approved by any regulatory authority in any jurisdiction. Stillfront has not authorized any offer to the public of shares or rights in any member state of the EEA and no prospectus has been or will be prepared in connection with the Share Issue. In any EEA Member State, this communication is only addressed to and is only directed at qualified investors in that Member State within the meaning of the Prospectus Regulation.

In the United Kingdom, this press release and any other materials in relation to the securities described herein is only being distributed to, and is only directed at, and any investment or investment activity to which this document relates is available only to, and will be engaged in only with, “qualified investors” who are (i) persons having professional experience in matters relating to investments who fall within the definition of “investment professionals” in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”); or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). In the United Kingdom, any investment or investment activity to which this communication relates is available only to, and will be engaged in only with, relevant persons. Persons who are not relevant persons should not take any action on the basis of this press release and should not act or rely on it.

Information to distributors

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended (“MiFID II”); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the “MiFID II Product Governance Requirements”), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any “manufacturer” (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the shares in Stillfront have been subject to a product approval process, which has determined that such shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the “Target Market Assessment”). Notwithstanding the Target Market Assessment, distributors should note that: the price of the shares in Stillfront may decline and investors could lose all or part of their investment; the shares in Stillfront offer no guaranteed income and no capital protection; and an investment in the shares in Stillfront is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Share Issue. 

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the shares in Stillfront.

Each distributor is responsible for undertaking its own target market assessment in respect of the shares in Stillfront and determining appropriate distribution channels.

[1] Figures presented in this press release, including the financial information, have been subject to rounding. Accordingly, in certain instances, the sum of the numbers in a column or row in tables may not add up.

[2] See footnote 1.