RF Acquisition Corp (NASDAQ:RFAC) has entered into a definitive agreement to combine with video game company GCL Asia at an equity valuation of $1.2 billion.

Singapore-based GCL produces and distributes video games through four subsidiaries spread across seven countries.

The combined company is expected to trade on the Nasdaq under the symbol “GCL” once the deal is closed in the second quarter of 2024.

Transaction Overview

RF has an estimated $44 million in its current trust having seen a March extension vote take 64% of its trust but that allowed it to stretch its transaction deadline to December 28.

It plans to supplement its trust with a PIPE or another structure including debt worth up to $20 million. GCL expects to receive gross proceeds of $42.9 million and has set the minimum cash condition at $25 million.

Existing GCL shareholders are rolling 100% of their equity into the combined entity and are expected to retain a majority while also nominating a majority of its Board.

The parties have not yet released their merger documents or an investor presentation, but RF’s profile page will be updated once more information is made available.

Quick Takes: This is the first deal that is openly projecting it will close as late as the second quarter of 2023.

That is sensible as international deals tend to take slightly longer to get through a review, though Black Spade bucked this trend hard in its 91-day sprint to close for Vietnamese EV-maker VinFast (NASDAQ:VFS) in August.

Nonetheless, those processes have recently been dragging out again and the last 10 SPAC deals to reach close did so an average of 266 days out from their announcement. That’s just under nine months, and, in fact, if RF hits this recent average, it would close on July 10, 2024.

It will need another extension to get beyond December so there is likely to be continued movement with this deal as the two sides arrange funding and negotiate those extra months.

So far, the news has helped tick RF well above its $10.29 redemption rate to $10.69 as of this writing and the SPAC may get some retail wind under its wings thanks to the popularity of its products.

GCL is the Asia distributor for Mundfish’s game Atomic Heart, which notched $15 million in sales on the Steam platform in its first month alone earlier this year. Since GCL’s release of the game in Asian markets in February, the markets under its purview have accounted for about half of the game’s overall sales.

The company says it plans to roll out six more games over the next year, but it is not clear what proportion of these releases will be of proprietary intellectual property and which will be distribution deals.

GCL’s main subsidiary EpicSoft Asia has been publishing games for 16 years and providing creative media and software services to game developers over this time. It is the appointed Southeast Asia and Greater China distributor for major studios Take-Two (NASDAQ:TTWO), CD Projekt Red (WA:CDR) and SEGA (TYO:6460), according to its website.

Its more B2B services-oriented subsidiary 4Divinity helps game developers to publish their titles on PC, consoles and mobile platforms.

It also handles the retail side of the market through its ecommerce platform 2Game, which is authorized to distribute games from Bandai Namco, SEGA and others globally.

Propelling this all along is its Titan Digital Media subsidiary, which works as an influencer-based marketing agency that develops campaigns for the company’s various gaming clients.

Clearly, each of these branches of the corporate tree make money based on different business models and margins. But, each of these constituent parts also have competencies that tend to trade well.

The company’s closest comp is likely Valve Corporation, which similarly operates as a go-to game distributor through its Steam platform, albeit primarily in the US and European markets.

Valve is still private, but was last estimated to be worth about $7.7 billion, according to Bloomberg. Like GCL, Valve started out making games itself, but has found the distribution game to be far more lucrative.

GCL’s market share is likely far below that of Steam, but assuming the market likes its developer tools, it is in good company there too.

Fellow game software firm Unity (NYSE:U) trades at about 6.8x revenue despite high cash burn while Roblox (NYSE:RBLX) trades at 7.7x in much the same situation.

Game studio Electronic Arts (NASDAQ:EA) meanwhile trades at 4.6x and GCL client Take Two at 4.9x.

ADVISORS

• GCL Advisors:
  • Loeb & Loeb is serving as US counsel
  • Icon Law is serving as Singapore counsel
  • AMGM is serving as an advisor
• SPAC Advisors:
  • Winston & Strawn LLP is serving as counsel
  • Early Bird Capital Inc. is serving as a financial advisor