Skillz Going Public at $3.5 Billion Valuation in Latest SPAC Gaming Deal
Posted on: September 2, 2020, 09:20h.
Last updated on: September 2, 2020, 03:18h.
Skillz Inc. — a provider of mobile games and esports tournaments — is merging with Flying Eagle Acquisition Corp. (NYSE:FEAC) in a deal setting the stage for the social gaming outfit to become a publicly traded company.
The transaction, the latest deal involving a special purpose acquisition company (SPAC) and a gaming firm, values San Francisco-based Skillz at $3.5 billion, or 6.3x 2022 revenue. Flying Eagle is led by Harry Sloan, Jeff Sagansky, and Eli Baker, the latter two founders of Diamond Eagle Acquisition Corp., the blank check company DraftKings (NASDAQ:DKNG) executed a reverse merger with to become a publicly traded entity in April.
Flying Eagle and Skillz are striking while the iron is hot in the gaming space. With more than 2.7 billion gamers playing monthly and 10 million developers around the world, the industry is now larger than some traditional entertainment forms, including books, movies, and music, and mobile gaming is driving that growth.
Mobile is the fastest-growing segment of the gaming market, expected to increase from $68 billion last year to $150 billion in 2025,” said Skillz, citing data from research firms Newzoo and GlobalData.
The bulk of the games featured on Skillz aren’t traditional casino fare, such as blackjack, craps, or poker. One of the aims of the platform is to match users based on proficiency so that rookies only play other new players and experts square off against other highly skilled competitors.
Proceeds from the deal will consist of $690 million raised by Flying Eagle and $159 million chipped in by investors Fidelity, Franklin Templeton, Neuberger Berman, and Wellington Management.
Following the transaction, Skillz will have $250 million in cash, which will be used for domestic and international growth and marketing expenses. At 6.3x expected 2022 sales, the multiple assigned to the social gaming company is comparable to those seen in other SPAC/gaming deals.
For example, Tilman Fertitta’s Golden Nugget Online Gaming (GNOG) is slated to go public this quarter in a merger with his blank check firm, Landcadia Holdings II, Inc. (NASDAQ:LCA), that values the iGaming firm at 6.1x next year’s revenue.
Skillz, which has 2.6 million active users, is projecting a 2022 turnover of $555 million, good for a compound annual growth rate of 57 percent from this year.
Under the deal terms, Flying Eagle and Skillz executives agreed to a 24-month lockup period in which they will not sell shares. The SPAC’s investors agreed to waive rights “to redeem shares representing in excess of $95 million of cash.”
Busy Year for SPACs
At the intersection of the gaming industry and special purpose vehicles, traffic is brisk in 2020. In addition to the aforementioned DraftKings, Golden Nugget Online, and Skillz deals, there’s dMY Technology Group Inc. (NYSE:DMYT) and Rush Street Gaming, which are coming together in a $1.8 billion deal so that the latter can go public.
There’s also speculation that sports betting data provider Sportradar, which is based in Switzerland, is looking for a US listing and is considering a SPAC deal to make that happen.
Gaming or otherwise, 2020 is already a record year for blank check IPOs and deal-making.
“So far in 2020, 60 SPACs have raised $22.5 billion, all-time highs for both count and proceeds with nearly five months to go,” said Renaissance Capital in an Aug. 5 research report.
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