News & Analysis

Chinese giant Tencent and its wrestle with Sumo: Shares stabilize after astonishing 42% rally

Andrew Saks, Tuesday, 20 July 2021

'Where there's muck there's brass', so they say in Yorkshire.

In the case of one particular Yorkshire company, where there is a Chinese investor, there's brass.

Sumo Group PLC, a publicly listed video game development company based in Sheffield, has become the subject of an acquisition by Chinese giant Tencent, the company that owns and operates the gigantic mobile messaging platform WeChat.

The company's acquisition was announced yesterday as the Chinese media giant offered 513p per share to buy Sumo Group, meaning that the total value of the deal is $1.27 billion.

The purchase, which will boost the Chinese internet giant's presence globally, brings together Sumo's racing and snooker games with Tencent's more high-profile range of games that includes Call of Duty's mobile version.

Sumo Digital's share price today has gone down today by 8.5 points in the aftermath of yesterday's record high in which shares suddenly rocketed by 42% as a result of the offer, which represented a 43% premium over the previous price and valued the company at £919 million.

That is quite an astonishing rally, however it was short lived and although the price is still extremely high compared to any period in the firm's publicly listed history, the upward direction did not continue past the close of business yesterday.

What is perhaps of great interest in this particular acquisition is why a Chinese company the size of Tencent would seek such high value interest in a Sheffield-based video gaming firm when China, Taiwan and South Korea are heavily populated with such companies.

Gaming is massive in Southeast Asia, and the companies that develop video games in the region are numerous and vast.

The reason is quite simple. Chinese communism. The government banned Tencent's plans to merge two Chinese video game streaming sites, those being DouYu and Huya, citing 'antitrust' as a reason.

This may well be a common method used by state regulators in illiberal jurisdictions, however the Big Tech firms of Silicon Valley have been fighting almost identical state instigated 'antitrust' battles, Facebook being one of the companies who fought back with a degree of success.

However, in China, you cannot fight the state, and therefore Chinese giants looking to expand their remit have to seek opportunities outside the reach of the Chinese internet system's all-seeing-eye.

Like many success stories in the niche software sector, Sumo Digital has risen from relatively humble origins. The company was founded in 2003 by Carl Cavers, Paul Porter, Darren Mills and James North-Hearn, four members of the former management team of Infogrames Studios, who branched out on their own following the closure of their former employer.

Via a series of mergers and acquisitions, Sumo Digital has grown and has even participated in blockchain-related projects.

A deal as large as the one the firm has now secured with a massive company with such a massive influence across China - over 937 million Chinese citizens use Tencent's WeChat regularly  - is remarkable considering the firm has only been a publicly listed entity for the last five years.

Onwards and upwards, lads.



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