Game Group back from the dead as Game Digital as new IPO heads our way

On 26th March 2012, the games console company, Game Group entered administration, another casualty on the British high street which hit landlords hard. It was purchased by Baker Acquisitions, a subsidiary of OpCapita the following week. Game is now owned by a vehicle called Capitex Holdings, whose directors are OpCapita founder Henry Jackson and Jim Shinehouse with links to the hedge fund Elliott Management Corporation.

Game came a cropper as it embarked on an over ambitious acquisition spree and international expansion drive. Under the new ownership, the company has reduced its size by closing 600 stores and moving out of Australia, Portugal, Scandinavia, France, Portugal and Eastern Europe to focus on the UK and France. The company is still fighting a Court of Appeal defeat with landlords over unpaid rent during its administration. Game has lodged a permission to appeal with the Supreme Court, but a set £3m has already been agreed with administrators as the maximum burden or win.

The Sony PS4 and Microsoft XBox One have helped the company more than double adjusted earnings before interest, tax, depreciation and amortisation to £51 million in the six months to the end of January on revenues of £586 million.

Last month Capitex announced it was bringing the retailer back to the London Stock Exchange just over 2 years since the original group was suspended from trading with a potential £400 million valuation and a price range of £2 – 2.20. Today it was announced that the shares in its initial public offering are being priced at £2, the bottom of the proposed range giving the company a value of £340 million. The company will officially list on June 11th 2014.

The IPO will raise gross proceeds of £121m for the business and owner Elliott Advisors and £20m of new money which will make it a nice little earner given the rapid two year turnaround in the company’s fortunes. The issue for any investors taking part in the IPO is the usual console and gaming cycle which means that that retailers in this space tend to have feast or famine as gamers upgrade to new consoles and then buy new games. Then of course there is the continued risk from online retailers like Amazon with cut price deals.

After seeing Saga sink after its May 29th IPO from a float price of 185p to the current 175p (though it did touch 187p on its first day of trading) and signs that institutions are not prepared to pay top dollar its not surprising the Game’s owners have had to launch the IPO at the lowest possible price. Still a pretty good return for the company’s owners despite the valuation fall back – I’m sure those companies owed money by Game Group are not so happy!

Contrarian Investor UK

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