Emerge Gaming divests revenue workhorse Miggster for $5 million

Penny stock Emerge Gaming (ASX: EM1) has today divested the business responsible for the majority of its revenue as part of its strategy to create value for shareholders.

Announced today, Emerge’s Miggster business, a subscription-based social gaming platform where users can win prizes by playing games, will be acquired by NIBIRU e-gaming AB (Nibiru) for $5 million payable over 12 months.

As part of the transaction, Nibiru will acquire the IP relating to the Miggster platform including a copy of the technology source code, but Emerge will retain the business’ core IP and technology.

Nibiru - a Sweden-based company formed by a private consortium of shareholders - will also acquire employees and contractors dedicated to servicing the Miggster business, and Miggster’s technology service and operational contracts will be transferred too.

Finally, all other assets in connection with or associated with the operation of the Miggster business will be acquired, including online stores, intellectual property, Miggster subscriber databases, office equipment and prize inventory.

For Perth-based Emerge, the divestment means letting go of the part of its business responsible for the bulk of its revenue.

In its latest December half results, EM1 reported its revenue from ordinary activities was $9.46 million - up 593 per cent on the prior half.

However, as Emerge considered Miggster ‘discontinued operations’ by the time it released its results, it removed Miggster’s contribution to the half’s revenue figure - which saw income drop by more than $9 million to just $192,278, meaning EM1 has just offloaded the business responsible for generating the bulk of its sales.

The company justifies this sale by saying the $5 million plus the $16.6 million it has in the bank will enable the growth of ongoing operations, namely the “MTN Arena” business - a competitive social gaming platform running in South Africa under a content provider agreement with telco MTN South Africa.

Emerge says since it launched MTN Arena, the platform has acquired more than 800,000 paying subscribers and continues to grow month on month, tapping into MTN South Africa’s more than 29 million subscribers in South Africa alone.

“The results of the MTN Arena platform in South Africa have provided the foundation for further extrapolation of this commercial model to the other countries across the MTN Group,” EM1 said.

“In addition, Emerge continues to target other multinational MNOs and distribution partners with millions of subscribers as the company seeks to accelerate the geographical expansion of its core technology.”

In addition, EM1 says it is increasing its investment into R&D to develop esports and gaming technologies, and launch an improved version of its social gaming platform ArcadeX.

“The company will realise the sale proceeds from Miggster along with a renewed focus and additional investment into the Company’s GTM strategies, in particular MTN Arena,” EM1 said.

As for the suitor, EM1 said it undertook due diligence on Nibiru, determining the representatives are “capable C-suite professionals that have the ability to operate the Miggster business and that the company will have the necessary financial capacity to fulfil its financial obligations on the date of settlement of the agreement”.

The release was also at pains to highlight how Emerge CEO Gregory Stevens travelled abroad and met the key representatives of Nibiru.

Shares in EM1 have crashed by 24 per cent following the release of the announcement today, down to $0.019.

However, the dip is minuscule on a longer-term basis, as the company has been trading at around 1 cent for the past few years and has a market capitalisation of $28.03 million.