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Hollywood Visual Effects Studio DNEG Going Public Via SPAC Merger

Image credit: Piqsels

The preeminent visual effects and animation company DNEG has decided to go pub lic. DNEG worked it magic in Inception (2010), Tenet (2020), Dune (2021) and The Matrix Resurrections (2021). London-based DNEG intends to merge with a special purpose acquisition corporation, or SPAC, in a deal valued at over $1.6 billion.

As a result of the merger, DNEG will become one of the few visual effects and animation companies that is publicly owned. Once the merger closes, shares of DNEG will be listed on the Nasdaq stock exchange. Observers expect the merger to be done by the second quarter of 2022.

DNEG has also been behind Sonic the Hedgehog 2, Jurassic World: Dominion, The Gilded Age, Ghostbusters: Afterlife, and Zack Snyder’s Justice League. The company has taken home some Ocxars for visual effects. For example, the 2021 Academy Award for Best Visual Effects was awarded to Christopher Nolan’s science-fiction action film Tenet.

A Brief History of Visual Effects and DNEG

DNEG has operations across the globe. It operates a total of nine studios, located in Canada, England, India and the United States. Worldwide, the company employs about 7,000 people.

The company dates back to 2014. It came about as a result of the merger of two visual effects giants, Prime Focus and Double Negative. Prime Focus launched in 1997 while Double Negative established itself in 1998.

Growth and Stability on the Horizon

Observers expect the merger between DNEG and Sports Ventures Acquisition Corporation to make DNEG’s growth accelerate. “This transaction creates long-term stability for our teams while also allowing us to exploit the tailwinds in the media and entertainment industry and the explosion in demand for content, which are huge growth drivers for our company,” stated DNET CEO Namit Malhotra.

According to the company, revenues for the fiscal year should equal $400 million for its March 31, 2022, fiscal year. Its EBITDA, a key measure of profitability, is expected to be approximately $100 million.

Hollywood Visual Effects
Image credit: Piqsels

DNEG’s success is aided by its cutting-edge technology infrastructure. In the motion picture industry, the company is often tapped to perform visual effects work. The company performs this work, called “ VFX,” for leading Hollywood movies. In addition to VFX work, the company does computer animation and stereo conversion work. The company also converts movies to 3D from 2D.

“Leveraging our leading technology stack, DNEG is already making great strides into new growth areas such as gaming and content creation partnerships, and we are perfectly positioned to exploit massive new opportunities in the metaverse and the convergence of all forms of content creation,” said Malhotra.

Visual Effects: A Future in Gaming

The company has established relationships within the industry. It hopes to use its advanced technology to jump into the gaming sector.

Last year, the video game giant Unity Software acquired a rival visual effects studio that Hollywood director Peter Jackson co-founded. The price was $1.6 billion. The rival studio, Weta Digital, is one of DNEG’s main competitors.

Key Players in the SPAC Merger

The SPAC merger includes a PIPE fundraising component. PIPE stands for “private investments in public equity. SPAC deals often use PIPEs. They provide an extra source of capital, from large institutional investors and wealthy individuals. To advance its visual effects business, DNEG expects to raise $168 million through a common stock PIPE from investors Novator Capital, Fairfax Financial, Arbor Financial, and others.

Less than a year ago, Novator Capital invested $250 million in DNEG and acquired a 15% stake. Icelandic billionaire Thor Bjorgolfsson founded Novator Capital. This investment helped DNEG’s CEO Namit Malhotra avoid the ill effects arising from Anil Ambani. The bilionaire investor’s financial empire collapsed.

Sports Ventures Acquisition Corporation, the SPAC entity, is led by Alan Kestenbaum, a minority owner of the Atlanta Falcons NFL team. SPACs have become a quick way to go public, considerably faster than the previously used initial public offering (IPO). Several other companies in the media and entertainment space have engaged in SPAC mergers, which are a popular alternative to traditional IPOs for companies in high-growth industries.

“As a recognized worldwide VFX and animation industry leader, DNEG has a huge opportunity to capitalize on rapidly growing demand from Hollywood studios, production companies and streaming services,” commented Kestenbaum. “The opportunity for expansion into new markets, such as gaming and the metaverse, as well as new markets for its core VFX and animation services, offers tremendous growth potential.”

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