14.06.22 15:22:13

Original-Research: Media and Games Invest SE (von GBC AG):


Original-Research: Media and Games Invest SE - von GBC AG

Einstufung von GBC AG zu Media and Games Invest SE

Unternehmen: Media and Games Invest SE

ISIN: MT0000580101

Anlass der Studie: Managementinterview

Letzte Ratingänderung:

Analyst: Marcel Goldmann

14/06/2022 - Management interview with Media and Games Invest SE

'We expect to continue to grow in 2022 and to benefit from the market

changes in the media sector. With the additional liquidity from the recent

bond issue, we are also excellently equipped with capital to benefit from

the current market in the M&A area.'

Media and Games Invest SE (MG) is an advertising software platform (ad tech

platform) with extensive first-party data from its own games content. The

regional focus of the Group's business activities is North America and

Europe. The company combines organic growth with value-enhancing

synergistic acquisitions, which has resulted in an average growth rate of

77.0% (CAGR between 2018-2021).

Late last week, the technology company announced the successful placement

of a new EUR175 million senior secured bond at 98.0% of par with a floating

rate coupon of EURIBOR+6.25% and, in parallel, the repurchase of a EUR115

million senior secured bond.

Against this background, we took the opportunity to interview Paul Echt,

CFO of the MGI Group, about the latest capital raising, the business model

and the prospects of the company.

GBC AG: Mr. Echt, MGI was able to place a new bond despite the current

tense market environment - especially for growth and tech companies like

you. What were the reasons for this step?

Paul Echt: We have no specific capital needs as we have both strong free

cash flow and sufficient cash of well over EUR 100 million. Nevertheless,

the motivation was to raise additional funds now in order to be able to

realize more M&A opportunities in the coming quarters, especially as

purchase prices have fallen sharply due to the market environment and -

should there be an economic downturn - are expected to fall further. In

this sense, we are acting with foresight and from a strong position.

For our M&A strategy, this means that we are now positioned for the coming

months in such a way that we can easily make smaller to medium-sized

upfront payments with the cash we have on hand. Vendor loans and earn-outs

(where a portion of the purchase price is paid at a later date based on

performance) only become payable in cash or shares further down the line.

This means that we can use existing cash to make acquisitions, utilizing

modest level of cash at the time, whilst reducing near term liquidity risk

and spreading the risk of equity dilution to shareholders.

We also think that with a strong cash position, it is always easier to

discuss potential high-value M&A deals, as sellers want to know, at least

in theory, whether the buyers will be able to pay the purchase price, even

if part of it is deferred, which is becoming more relevant for sellers

especially in the current market environment.

This strategy as well as our M&A track record is generating strong investor

interest, which is why the placement was so successful, and why we decided

to increase the volume from the originally planned EUR 125 million to EUR

175 million.

GBC AG: Mr. Echt, what is your overall conclusion for this transaction,

especially in light of the fact that the interest coupon is 0.5% above that

of the existing bond?

Paul Echt: The fact that the interest coupon is higher than on our existing

bond, which we initially placed at 98% below par with a coupon of 5.75%,

reflects the changed market environment and the new reality in which we

find ourselves, in which money costs more. We have to to adapt to this

mentally and strategically, because inflation and rising interest rates

will not disappear that quickly. Against this background, we rate the

placement in the current market environment at a coupon of 6.25% p.a. at

98% below par, i.e. 0.5% p.a. higher than in the original bond, as a strong


Note that we used around EUR 115 million of the EUR 175 million to

refinance parts of our existing bond, with many investors rolling over from

our 'old' bond to the new bond, with a longer maturity, thus achieving

further diversification of the maturities of our bonds, reducing the

refinancing risk. We thus reduced the amount that has to be refinanced at

the end of 2024 from EUR 350 million to EUR 235 million. We have also done

this against the background of it being impossible to predict how financial

markets will develop and how long a possible crisis will last. The EUR 235

million can now be covered by our own cash flow and cash resources and

reduces the overall risk profile of the company, which is positive for all

our investors.

GBC AG: MGI has developed from a pure games company to an advertising

software company with its own games. Could you explain again what exactly

the business model looks like now and where the investment focus will be in

the coming years?

Paul Echt: Over the past few years, MGI has developed into a fast-growing

advertising software platform that helps its customers acquire new users

and monetize their advertising space. With our currently more than 450

software clients, 93% of our revenues is predominantly concentrated on the

so-called 'supply side'. This primarily includes mobile game companies such

as King or Zynga, which use our software to monetize their advertising

space in the games. In addition, with our extensive games portfolio, which

also includes the recent acquisition of mobile games developer

'AxesInMotion', we have a very large number of our own advertising spaces

as well as high-quality user data. This makes us very interesting for

advertisers. Against this background, we now want to invest more in the so-

called 'demand side', which currently accounts for only 7% of Group

revenues. This means that we want to build more direct relationships with

advertisers and agencies who place ads via our own campaign management tool

(a demand side platform). This in turn would mean that we would rely less

on third party demand side platforms such as Trade Desk that bid on our

supply from our own ad spaces and other companies such as as Zynga or King,

so that we can again significantly increase our margin as we represent an

even larger part of the value chain. To achieve this, we hired

significantly more sales staff in the first quarter, particularly in the

USA. The aim is to establish even more direct customer relationships with

major advertisers in the USA. At the same time, we also want to invest more

in demand-side platforms in order to buy direct customer contracts with

major advertisers via M&A, where we can then realize very strong synergies

with our existing supply side. Of course, the recent bond issue will also

help us finance this strategy.

GBC AG: In view of the uncertainties regarding an ongoing Corona pandemic,

the expansion of the Ukraine war and a further intensification of

inflation, there is a risk of a significant cooling of the global economy

or even recessionary developments. How stable or robust do you consider

your industry and your business model to be in the event of a recession?

Paul Echt: If you look at all the indicators, from our point of view there

is a chance of a recession. If that's the case, it's likely that

advertisers' media budgets will also be affected, because companies can

make relatively quick and flexible cuts in this area. This was seen, for

example, in the second quarter of 2020, when Covid significantly impacted

the advertising budgets of some companies from particularly hard-hit


While a recession could have a negative impact on advertising budgets, one

could expect the games industry to again show itself to be very resilient

and benefit from it. This could be seen not only during Corona, but also in

other financial crises such as 2008. The reason for this is simple; when

people have more leisure time and, at the same time, less money at their

disposal, they look for comparatively cheap leisure activities and most

games are usually much cheaper than an evening in a restaurant, at the

theater or at a concert.

Since, in addition to our revenues from our own games, approximately 70% of

our advertising software revenues are derived from digital games and

entertainment customers, we have, in our view, a relatively resilient

business model compared to other companies in the advertising sector that

are less focused on games and entertainment and do not have their own games

business. In addition, we expect the trend of spending of advertising

budgets on programmatic advertising - at the expense of more traditional

forms of advertising - to accelerate further.

However, it is not yet possible to realistically assess what effect a

prolonged recession will have on our media business. It is possible that

this business will grow somewhat less strongly, but we will aim to

compensate for this with investments, especially in the area of data.

GBC AG: Recently, the MGI Group has again recorded a strong opening quarter

in the current fiscal year 2022. What can investors expect from your

company in the current fiscal year? What guidance have you given yourself?

Paul Echt: We expect to continue to grow in 2022 and to benefit from the

market changes in the media sector - deprecating identifiers and cookies.

Even in light of a possible recession, we have not revised our growth

targets downward in our quarterly report but remain positive about the rest

of the year for the reasons already mentioned. We want to increase revenue

by between 17 and 25% to between 295 and 315 million euros and raise EBITDA

by between 17 and 31% to between 83 and 93 million euros. We were able to

top the revenue target in Q1 2022. Revenue growth was 27% and adjusted

EBITDA improved by 30%, driven by organic growth. We also acquired the

highly profitable AxesInMotion in April. Further M&A transactions are not

included in our outlook for the full year.

GBC: Thank you very much for the interview.

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Date (time) of completion: 14/06/2022 (14:41 pm)

Date (time) of first distribution: 14/06/2022 (15:20 pm)

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