Mail.ru Group - Entering Partnership To Develop Its E-Sports Vertical Globally

Mail.ru Group (MRG) has announced that it will be partnering with Modern Pick (a European game developer with a focus on racing games) to develop its e-sports business globally. MRG will contribute 51% of ESforce (valued at $110 mln, with an implied valuation including disposed assets of $120+ mln versus the around $129 mln that MRG paid for it). In exchange for this, MRG will receive 16% in Modern Pick (initially valued at $350 mln for the combined Modern Pick-ESforce company), which will bring its stake to 19%. Later, MRG's stake will be revalued based on the 2022 financial performance. Partnering with Modern Pick should give MRG access to a broader game portfolio and expertise in the development of AAA+ games (some of which could potentially become new disciplines in e-sports), as well as access to media (including German broadcaster ZDF) and global brand partnerships (including with Red Bull). We welcome the deal, as it gives MRG the opportunity to develop its e-sports vertical on a global scale. The key thing to watch will be how well the two parties will be able to execute their intention. We reiterate our BUY rating and $29.70 target price for Mail.ru Group.