A US$700m financing for the take-private of formerly Hong Kong-listed Razer, Asia’s first leveraged buyout loan from the video gaming peripherals sector, has closed following a blowout response from lenders.
Over US$600m in commitments came in from 18 participating banks for the US$350m five-year term loan that was syndicated. The lenders represented a mix of Taiwanese, Chinese, South-East Asian, Australian and European banks.
A combination of factors, including the borrower’s strong credit profile, diversified business, modest leverage of less than 2.5 times, and timing played a role in the successful outcome. The loan provided lenders the opportunity to take exposure to an unusual credit from Asia.
“The sector is appealing to lenders as Razer represents branded electronics and technology,” said a senior loan banker. “It is an unusual credit in Asian loan markets and doesn’t really have a comparable.”
Dual headquartered in Singapore and the United States, Razer has evolved and diversified its business after initially starting out as a computer gaming peripherals company. In recent years, the company increased its focus on expanding into emerging segments, such as software and fintech services. It aims to grow its merchant-focused B2B payment solutions business in the next stage of its development, according to a March 30 filing to the Hong Kong stock exchange.
A consortium led by Razer applied for a digital banking licence in Singapore in 2020, but was unsuccessful. The company said at the time it still planned to expand into digital banking and had been in talks with other jurisdictions.
“The company is building an eco-system around computer gaming with hardware as well as software capabilities so that it is not exposed to the vagaries of online games that can fall out of favour very quickly,” said another senior loans banker in Hong Kong.
Razer turned profitable in 2020, despite the challenges arising from the pandemic, three years after listing in Hong Kong. It generates revenues from customers globally with the developed markets of the US and Western Europe accounting for around 70% combined.
Another banker in Hong Kong said: “The company has a market leading position globally in video gaming peripherals that actually benefited from the pandemic. Banks also buy into its diversification story, which means expanding into the technology sector with strong growth potential.”
For the year ended December 31 2021, revenues from Razer’s software and services segment grew by approximately 26.6% to US$162.5m, although the segment is still at a relatively early stage of development, contributing about 10% of the company’s total revenues.
Meanwhile, the global games market grew from approximately US$144.4bn in 2019 to an estimated amount of US$180.3bn in 2021, representing a compounded annual growth rate of approximately 11.7%, according to games market research firm Newzoo.
Bankers believe the take-private was a good move for Razer as it was undervalued in Hong Kong and attracted little trading. Its 2017 IPO priced at HK$3.88 per share, but the stock had traded below that level since January 2018.
According to them, sponsors of the take-private – Razer's top executives and private equity firm CVC Capital Partners – could consider a US relisting at a later stage after the company has grown its business further.
Only game in town
Razer’s financing benefited from timing as well as it faced little competition in North Asia, which has hit a dry patch in leveraged finance amid a dearth of deal flow generally from China. The year-to-date tally of leveraged loans from North Asia is a mere US$640m from a single loan backing the management buyout of Taiwanese contact lens maker Ginko International, compared with US$6.06bn for all of 2021, according to Refinitiv LPC data.
“Given the sluggish economy and lockdowns, M&A activity has come to a standstill in China, which used to be a major contributor to the activity in North Asia,” said another Hong Kong-based leveraged finance banker. “The pipeline is also looking weak, with some potential deals being stalled because of valuation gaps. Razer’s borrowing has provided diversification to the dealflow from Asia as most of the M&A and leveraged financings have come from Australia and India in the first half of the year.”
Citigroup, Credit Suisse, HSBC and United Overseas Bank were the mandated lead arrangers and bookrunners of the financing, which also has a US$350m six-month bridge facility that was not syndicated.
The five-year term loan offered a top-level all-in pricing of 399.1bp based on an opening interest margin of 375bp over SOFR and an average life of 4.15 years.
Razer's chairman Min-Liang Tan and non-executive director Kaling Lim led the consortium, which took the company private in a deal valuing the company at HK$24.7bn (US$3.17bn). Razer was delisted on May 13 from the Hong Kong stock exchange.