King Digital Entertainment Plc, the maker of the “Candy Crush” smartphone game, raised $500 million in its initial public offering, pricing the shares in the middle of the marketed range.
King and shareholders Apax Partners LLP and Index Ventures sold 22.2 million shares for $22.50 each, according to a statement yesterday, after offering them for $21 to $24. The IPO price values King at $7.09 billion.
“Candy Crush,” a puzzle game featuring different-colored candies, has 97 million daily active users and accounts for as much as 78 percent of King’s annual sales, the IPO prospectus shows. King generates revenue when users purchase virtual items, such as extra lives or additional content, for about $1 apiece. Its other games, including “Farm Heroes Saga” and “Bubble Witch Saga,” each have fewer than 20 million daily users.
The Dublin-based company offered the shares at a discount to its publicly traded peers, including Chinese game developer Giant Interactive Group Inc. and Zynga Inc., data compiled by Bloomberg show.
King will debut at a multiple of 2.7 times projected sales, based on an estimate from Sterne Agee & Leach Inc. The company will post $2.62 billion in revenue this year, according to a projection by Arvind Bhatia, an analyst at Sterne Agee who initiated coverage on March 20. While that would reflect a 39 percent increase from 2013, it’s slower than the 1,000 percent annual jump from 2012, the prospectus shows.
Giant Interactive trades at 6.3 times estimated 2014 sales, and Zynga Inc. fetches 5.2 times. Activision Blizzard Inc., the largest U.S. video-game publisher, trades at 3.2 times estimated 2014 sales.
King’s discount may reflect lessons investors learned following Zynga’s debut. The maker of “FarmVille” went public in December 2011, dropped 5 percent in its first day of trading and slumped almost 80 percent in the subsequent year. Zynga’s revenue, like King’s, was concentrated in one major source at the time of its IPO: more than 90 percent of its sales came from Facebook Inc. Shares continued to slide as Zynga’s users started defecting to “Candy Crush.”
Unlike Zynga, which hasn’t posted an annual profit since it went public, King’s after-tax profit margin was 30 percent last year, its prospectus shows.
Apax, which planned to sell about 2 percent of its shares in the IPO, invested 28.9 million euros in King in 2005, then worth $35 million. The IPO price values its pre-offering stake at $3.25 billion. In addition, the firm has received $266 million in dividends.
U.S.-based investors in Apax, a majority of the firm’s backers, will score about a 100-fold partly realized gross profit in the offering. The firm’s euro-based investors will post about an 87-fold gain.
Index Ventures, a Geneva-based venture-capital shop that invested 5 million euros alongside Apax, will reap a return of similar magnitude.
King’s shares will start trading today, listed on the New York Stock Exchange under the symbol KING. JPMorgan Chase & Co., Credit Suisse Group AG and Bank of America Corp. managed the offering.