Electronic Arts eyes VanEdge Capital’s online gaming and access to China, say analysts

Vancouver’s VanEdge Capital is in talks with gaming giant Electronic Arts and other partners to close a $100 million deal to invest in digital media start-ups, say sources close to the deal. Analysts tell The Wire Report that Electronic Arts is probably interested in VanEdge to move toward online gaming and to gain access to China. The main players have yet to iron out the details, but early reports say VanEdge is putting funding together from six limited partners, including gaming giant Electronic Arts (EA), the Business Development Bank of Canada (BDC), and Export Development Canada (EDC). VanEdge’s co-founder and general partner, V. Paul Lee, is former president of Electronic Arts’ EA Studios. VanEdge is not commenting on the deal, but Lee’s administrative assistant said he would be available for an interview at the end of February, by which time the deal is expected to close and the details are public. Still, those involved maintain nothing is certain. “At this point we are in the consideration phase,” Phil Taylor, chief spokesman at EDC, told The Wire Report. “We are definitely not committed.” BDC media relations manager Johanne Bissonnette said in an email that it is premature to discuss the investment as “it is still being reviewed internally.” She added that the EDC would be happy to follow up “once the transaction had closed.” Analysts say they believe EA is moving on a deal with VanEdge for two main reasons: first, it is aware that its console business will be disrupted by online and mobile gaming; and second, it wants access to China. “The market is changing very fast,” said Atul Bagga of ThinkEquity. “With Paul Lee, they can go in the direction of online gaming, which is where the growth is.” VanEdge general partner Jason Chein is a former general manager of Electronic Arts China who now works from VanEdge’s office in Shanghai. Chein’s knowledge of how business is conducted in China could help VanEdge negotiate technology partnerships. “This would be incubator stuff, and likely focused on games,” Michael Pachter, an analyst with Wedbush Morgan, said in an interview. He added that the value of a China strategy would have been articulated to EA and other partners. “I’m sure as part of the capital raising process, Mr. Lee gave a reason.” Analysts say they believe that EA, headquartered in Redwood City, Calif., is quarterbacking the funding, with other players relying on the public company’s expertise and due diligence to set things in motion. “It’s very likely that this will be pooled capital,” Pachter said. “EA has about US$1.5 billion in cash, and more than that in marketable securities. This would be a meaningful investment for them. It shows they have confidence in VanEdge,” Pachter said. “EA is a public company, and they are responsible to their shareholders when it comes to capital allocation,” Arvind Bhatia, an analyst with Sterne Agee told The Wire Report. “If there are other partners in there, EA will be talking to them.” Private Equity Hub, a blog for the private equity community, has reported that the deal’s limited partners also include the British Columbia Investment Management Corp., BC Renaissance Capital Fund and Nicola Investments. In addition to Lee and Chein, VanEdge’s management includes another former EA official: general partner Glenn Entis, former chief visual and technical officer of Electronic Arts’ Worldwide Studios. “EA’s familiarity with Paul Lee will give them some comfort,” Pachter said. “They know he’s a really smart guy.” Bagga added that EA may be seeking to add depth and value to Playfish, a social gaming company it bought late in 2009 for US$300 million. “The purchase of Playfish was part of this trend away from a subscription to a fee-to-play model,” Bagga said. “This is a very different mindset.” There is a range of structural options for investment in VanEdge, Bhatia said. “Investors may give VanEdge up to $100 million, but only depending on the projects that are available,” Bhatia said. “In return, EA might get exclusive rights. This would be the same as funding games with external developers. It could also be spread over years.”

Electronic Arts eyes VanEdge Capital’s online gaming and access to China, say analysts

Broadcast | January 29, 2010

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