Irvine-based startup Oomba Inc. has taken an unconventional route toward buying an entertainment and gaming venues company from Chatsworth-based GameWorks Entertainment LLC.Â
An end result of the 15-month quest for a deal, which is expected to close in a few months, is a $60 million purchase that will result in a combined company called Oomba GameWorks. Â
The company will combine esports, virtual reality and video games at GameWorks’ nine existing locations, and plans call for future expansion across the country, including esports stadiums.
Another result: Oomba itself is being acquired by a cash-flush blank-check company known as a special-purpose acquisition company, or SPAC—Barington/
Hilco Acquisition Corp.—a joint venture between Barington Capital Group in New York City and Hilco Global in Northbrook, Ill.
Barington/Hilco initially raised $40 million in a 2015 initial public offering, although that number’s dropped to $35 million due to some investors pulling out during an extension period, and has been searching for suitable acquisition partners before an Aug. 11 deadline.
The combined company will have an estimated market value of about $95 million, according to Oomba Chief Executive Michael Williams. Oomba developed a cloud-based management system for tournaments, and leagues for sports and games, including esports.
Oomba’s ultimate game plan is to build stadiums for esports competitions at each of GameWorks’ nine existing locations; expand the number of locations; and invite professional esports team to pick a location as its home base.
The esports industry is estimated to generate about $700 million this year, and more growth is anticipated, according to news reports.
“Esports is a sport,” Williams said. “The viewership numbers prove that. And as a sport, it must act like a sport. It needs stadiums, and Oomba GameWorks will be those stadiums.”
GameWorks’ nine U.S. venues include two in California: Ontario and San Francisco. The majority are 30,000 to 35,000 square feet. All feature a large arcade with various types of games, plus a sports bar and restaurant.
Integration of esports has already happened in the Seattle, Las Vegas and Denver locations, Williams said. Oomba wants to build attached esports stadiums at all of the locations and ultimately expand Oomba GameWorks to about 32 locations. Williams said 32 is the ideal number for a professional esports league because it allows for an even number of teams to compete and mirrors the NFL’s size.
The stadiums, which will seat 1,500 to 1,800 people, could double as venues for music, comedy or other performances but are primarily intended for large esports events, Williams said. Oomba hopes its stadiums will attract teams of Irvine-based Blizzard Entertainment Inc.’s Overwatch League. The league, which will be launched at a future date, will be based on the “Overwatch” game. Blizzard Entertainment is a unit of Santa Monica-based Activision Blizzard Inc.
Dozens more professional esports teams are being formed, many funded by traditional sports players and teams, Williams said.
Oomba also plans to add virtual reality to each location in the form of tournaments and playrooms.
Creative Financing
Oomba launched in 2012 after Williams and one of his programmers got frustrated by the “lack of enthusiasm” among large game publishers to use their plan for an online-only tournament platform. They decided esports had its own requirements and was an “under-served” market, so they created Oomba, Williams said.
Oomba is a sponsor of the University of California-Irvine’s esports program.
Last year, Oomba set its sights on acquiring GameWorks. Williams believed it was the “perfect place to start because it already had a footprint, was already profitable, and was growing.”
Financing the deal was anything but easy, he said.
Oomba first tried to borrow $20 million from a bank. GameWorks’ revenue and traction was enough to get “conservative” lenders interested, Williams said, but the “novelty and newness” of Oomba was too much of a risk.
“The banks were simply unsure if they would be paid back,” he said.
Williams figured out a way to reverse-engineer the financing, finding investors in Barington/Hilco Acquisition Corp., a special-purpose acquisition company, or SPAC.
A SPAC operates as a shell company, “a figurative blank check” that raises money through an initial public offering to acquire an unspecified target company, said Hilco Global Senior Vice President Daniel Arnold.
The Barington/Hilco SPAC committed to investing a minimum of $23.5 million to finance the acquisition. The commitment also enabled Williams to circle back to the banks and get a $10 million loan from Chicago-based ExWorks Capital.
“Oomba GameWorks is the exact type of company and the exact type of opportunity our [special company] was targeting,” Arnold said. “We’re excited to see the pairing come together.”
Barington and Hilco will be the largest shareholders of the combined company at the close of the transaction. The possibility remains that more of the SPAC’s institutional investors could pull their money out once they find out the recipient is Oomba GameWorks, Williams said, though he added that he’s optimistic.
“We’re convinced that not only will the $35 million stay, but it might go up to $40 million by closing.”
One of a SPAC’s “unique” features is that it’s already trading on a public exchange. Barington/Hilco is on NASDAQ under the trading symbol BHAC. That allows for “a much faster and much less expensive route to a public market,” Arnold said, explaining that’s because much of the costs and efforts associated with a public offering have already been incurred.
Waiting Game
While all the behind-the-scenes machinations were transpiring, Williams had to persuade GameWorks that the deal would happen. Its chief executive, Greg Stevens, said his company became impatient, and at the time it was waiting for the deal to go through, it enlisted B. Riley & Co. Inc. to look for other buyers, with the goal of finding a new partner that could carry the GameWorks brand into an “aggressive growth mode.”
Everything finally coalesced for all parties at the “final hour” on May 16, just in time for the deadline set by GameWorks’ first-position lender, which had to be paid on that day or the deal was off, Williams said.
Stevens said the acquisition is “a good strategic fit.”
