Hero Entertainment Co., Ltd., a Chinese mobile online game company that was recently listed on China’s National Equities Exchange and Quotation (NEEQ:430127), and Chinese entertainment company Huayi Brothers Media Corporation (SZSE:300027) jointly announced the signing of an equity investment agreement on November 19, 2015, whereby, Huayi Brothers invested 1.9 billion yuan (approx. US$288 million) for a 20 per cent stake in Hero Entertainment, making Huayi the latter’s second largest shareholder.
The transaction price was based on the valuation of Hero Entertainment, agreed to by both sides as 19 times Hero Entertainment’s estimated audited after-tax net profit for 2016 (9.5 billion yuan), as per commitments to profit performance provided by Hero Entertainment’s top management. Huayi Brothers Media acquired 27,721,886 shares of Hero Entertainment (representing about 20 per cent after the capital injection) for 1.9 billion yuan.
According to the agreement, for the three years ended December 31, 2018, Hero Entertainment committed to a goal of an audited after-tax net profit for 2016 of not less than 500 million yuan and estimated audited after-tax net profit for 2017 and 2018, in each case, 20 per cent higher than that of the previous year. These figures mean that Hero Entertainment’s net profit for the next three years is expected to total not less than 1.82 billion yuan.
The newly NEEQ-listed Hero Entertainment is mainly engaged in the development and management of e-sports game products as well as organizing and promoting mobile eSports competitions. The firm, a leading mobile game developer, distributor and publisher in China, with a footprint that includes mainland China, Hong Kong, Macau, Taiwan and Southeast Asia, has developed and distributed several popular mobile games. Hero Entertainment won the The Most Influential Distributor of 2015 Jinling Award. With a focus on further expanding into the mobile eSports game market, Hero Entertainment is not only the organizer of Hero Pro League (HPL), one of the most popular mobile eSports tournaments in China, but also the sponsor of the Ying Xiong Lian Meng or Heroes Alliance, a China-wide mobile E-sports games association, the largest of its kind in the country.
Hero Entertainment’s investors include Sequoia Capital, Huaxing Fund, ZhenFund and Chinese real estate tycoon Wang Jianlin’s son Wang Sicong. Tianjin Dinuo Investment Management, which owns 44.028 per cent of Hero Entertainment, is the game publisher’s acting controller. Huayi Brothers, with its acquisition of a 20 per cent stake in Hero Entertainment, has become the second largest shareholder of the e-sports company.
The announcement of Huayi Brothers’ role as Hero Entertainment’s strategic investor is expected to have a positive impact on the e-sports operator’s future business portfolio. Hero Entertainment plans to collaborate with Huayi Brothers in several areas, including films and TV shows as well as eSports games, in a move to further increase its profitability. Under the terms of the agreement, Huayi Brothers has been granted right of first refusal in terms of adapting any of the eSports games developed or managed by Hero Entertainment into films, TV series, web series or other media form, at the fair price and on equal terms. Meanwhile, Huayi Brothers’ subsidiary Huayi Brothers (Tianjin) Interactive Entertainment is to consider Hero Entertainment as the partner of choice for the joint development of any eSports games within its interactive environment.
Huayi Brothers explained that with its investment in Hero Entertainment, the company has expanded into the eSports game market, further strengthening its influential position across the game industry chain and serving to expand its Internet entertainment business while promoting the effective implementation of its large-scale entertainment strategy.
Source: Press release