8-K: GameSquare Sells 25.5% Stake in FaZe Media for $9.5 Million, Retains Voting Control
Merger Announcement
GameSquare Holdings has sold a 25.5% interest in FaZe Media for $9.5 million to an entity controlled by FaZe Banks, following a previous $11 million investment by Matt Kalish.
Summary
- GameSquare Holdings sold a 25.5% stake in FaZe Media to an entity controlled by FaZe Banks for $9.5 million.
- This transaction follows an $11 million investment by Matt Kalish for a 49% stake in FaZe Media.
- The combined transactions value FaZe Media at approximately $40 million.
- GameSquare retains a 25.5% ownership in FaZe Media and will continue to consolidate FaZe Media's financial results.
- GameSquare will maintain voting control of the transferred shares for two years.
- The purchaser has an option to acquire an additional 3,230,556 shares of FaZe Media at a minimum price of $2 per share.
- FaZe Media's revenue for the twelve months ended March 31, 2024, was $30.0 million.
- GameSquare continues to own 100% of FaZe Esports, which had revenue of $11.3 million for the twelve months ended March 31, 2024.
Sentiment
Score: 7
Explanation: The document presents a positive outlook with strategic asset sales and a focus on core business areas. The company is generating non-dilutive capital and retaining control of key assets. However, the reduction in ownership of FaZe Media and the potential for further dilution temper the overall sentiment.
Positives
- GameSquare has generated $9.5 million in cash from the sale of a portion of FaZe Media.
- The transaction values FaZe Media at approximately $40 million, demonstrating the value of the brand.
- GameSquare retains voting control of FaZe Media for two years, ensuring continued influence.
- GameSquare maintains 100% ownership of FaZe Esports, a key asset.
- The company has added over $36 million in non-dilutive capital through recent transactions.
- The company is focused on optimizing its business model and prioritizing high-growth assets.
Negatives
- GameSquare has reduced its ownership stake in FaZe Media to 25.5%.
- The company is reliant on the success of FaZe Media to realize the upside growth potential.
- The purchaser has an option to acquire additional shares, which could further dilute GameSquare's ownership.
Risks
- The company's ability to achieve its objectives is subject to various risks and uncertainties.
- The company's success depends on its ability to execute its growth strategy.
- The company's ability to obtain future financing or complete offerings on acceptable terms is not guaranteed.
- The company is dependent on key personnel.
- General business, economic, competitive, political, and social uncertainties could impact the company's performance.
Future Outlook
GameSquare intends to use the proceeds from the sale to invest in growth and support working capital requirements. The company is focused on optimizing its business model and creating a best-in-class platform of media, technology, and esports assets. GameSquare believes that strong industry fundamentals, combined with owning the number 1 esports team, and its track record of building a high-performing and profitable esports organization will create lasting value.
Management Comments
- Justin Kenna, CEO of GameSquare, stated that the announcement is a win-win for GameSquare, FaZe Media, and the greater FaZe Clan community.
- Kenna also mentioned that the strategy has been focused on reigniting the FaZe brand by returning its founders in a meaningful way.
- Kenna noted that retaining ownership in FaZe Media demonstrates their belief in the value of the FaZe brand and commitment to FaZe Banks' vision.
- Kenna concluded that they are focused on optimizing their business model to create a best-in-class platform of media, technology and esports assets.
Industry Context
The sale of a stake in FaZe Media reflects a trend of strategic partnerships and investments in the esports and gaming industry. The focus on creator-led IP and media companies aligns with the growing importance of influencers and content creators in the digital entertainment space. The esports viewership growth mentioned in the document highlights the potential for growth in this sector.
Comparison to Industry Standards
- The valuation of FaZe Media at approximately $40 million is a key metric for comparison with other esports and gaming media companies.
- The sale of non-core assets at valuations of 1.0x to 1.8x trailing 12-month revenue provides a benchmark for assessing the value of GameSquare's assets.
- The 220% growth in annual sales of GameSquare's prior esports team from 2021 to 2023 is a strong performance indicator compared to industry averages.
- The document mentions that esports viewership was the only live streaming category that grew in 2023, which is a positive trend compared to other streaming categories.
Related Party Transactions
- The sale of a 25.5% interest in FaZe Media to an entity controlled by FaZe Banks is a related party transaction.
- The $11 million investment by Matt Kalish into FaZe Media is also a related party transaction.
Stakeholder Impact
- Shareholders: The sale of a stake in FaZe Media and the focus on core assets could be viewed positively by shareholders.
- Employees: The restructuring and focus on high-growth areas may impact employees.
- Customers: The changes in ownership and strategy may affect the products and services offered to customers.
- Suppliers: The company's focus on core assets may impact its relationships with suppliers.
- Creditors: The company's improved financial position may be viewed positively by creditors.
Next Steps
- GameSquare will use the proceeds from the sale to invest in growth and support working capital.
- GameSquare will continue to provide certain corporate and agency services to FaZe Media.
- The second tranche of the Secondary Preferred Stock Purchase Agreement is expected to close on or prior to August 15, 2024.
- The purchaser may exercise the option to acquire additional shares of FaZe Media.
Key Dates
| Date | Description |
|---|---|
| May 15, 2024 | Date of the original Trademark License Agreement between FaZe Media and GameSquare. |
| June 17, 2024 | Effective date of the First Amended and Restated Trademark License Agreement and the Secondary Preferred Stock Purchase Agreement. |
| June 18, 2024 | Date of the press release announcing the sale of FaZe Media stake. |
| August 15, 2024 | Expected closing date for the second tranche of the Secondary Preferred Stock Purchase Agreement. |
| July 1, 2026 | Start date of the period during which the purchaser can exercise the A-1 Call Right if the Purchaser Voting Proxy is terminated. |
| September 30, 2026 | End date of the period during which the purchaser can exercise the A-1 Call Right if the Purchaser Voting Proxy is terminated and the date by which the Change in Voting Control must occur for the Kalish Investor to exercise substitution rights. |
| October 1, 2026 | Start date of the period during which the Kalish Investor can exercise substitution rights if the Change in Voting Control has not occurred. |
| December 31, 2026 | End date of the period during which the Kalish Investor can exercise substitution rights if the Change in Voting Control has not occurred. |
Keywords
FaZe Media, GameSquare, FaZe Clan, eSports, investment, acquisition, equity sale, voting control, Matt Kalish, FaZe Banks
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