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Thursday, 27 March 2008

PacificNet saddled with involuntary -

PacificNet saddled with involuntary -

This is indeed sad if this was the case, I was looking forward to meeting with Tony this week in Hong Kong.

Without referring to this specific case, but I am happy to share some of the key points I raised at a separate meeting with another firm here (with positive cash flow and profitable business) regarding raising capital. I discussed the pros & cons of listing for a gaming market focused firm.

Key points are:

1.) Listing on the public market makes more sense for transparent and well understood sector (in terms of revenue/profit/KPI, and industry life cycle and multiples, plus ideally several cycles of boom and busts)

2.) If access to capital is key (for exit of share holders or for acquisition purpose), one can easily access Equity/VCs for a well proven business no matter what sector it is in (although VCs/PEs that specialise in remote gaming are comparative few)

3.) Non-relevant news and short-term jitters may adversely affect share price & stock holder confidence of a gaming firm (esp. remote focused) may not be ideal for firms that 'needed' a calm foundation to focus on growth. mostly due to the fact of sheer lack of well known/proven KPIs and industry life cycle data, especially for the remote gaming gambling sector (in some ways KPIs for offline casinos are different for different markets like Macau vs Las Vegas)
4.) Gaming firms need three things in order for growth, namely: A.) trust and confidence in its brand, B.) reach to future/new customers and leverage this trust/encourage play, C.) differentiate and provide something special hopefully to retain/keep the clients. Therefore, unless the company is in a growth market/verticals within the developing phase of industry life cycle, the fluctuation of revenue/profit and lack of understanding of sector means Private Equity owners might be more patience to look for medium/long term growth (within reasons) if gaming firm has A-C covered above.
5.) Fundamental business, gaming firms is unique, my analogy is that it is running a combined 'grocery store-bank'.. key is how it induce and keep the trust and confidence and how it can 'expand', see how Tesco or indeed Waitrose built up in the offline/online retail store in UK is a good example. Its a cash flow, profit margin play, therefore, how to be efficient in cost and how to increase top line growth is key.
Therefore, my suggestion to the firm was that if they had a good market positioning and can 'scale' up and reach clients, means that its much better to grow as a private company than being 'listed', as the general market sentiment is now more focused on the high capital expenditure offline gaming gambling play, therefore, those people that invest in remote gaming firms are more speculative investors (unless it is for likes of holdings or PartyGaming main LSE market stocks, which even some pension funds would buy due to portfolio strategy).
Consequently, the success/failure of the company could too much dependent on the 'mood' of the speculative investors, which means it does not generally provide a good foundation for these remote egaming firms for growth.. and it may become too much a management distraction.
Of course, if there is no other ways of raising the cash, then sure, one might argue that these are the firms that one might/should avoid in the first place!??

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