An average of 144 million people were daily players of Candy Crush Saga and other King Digital games in February 2014. Photograph: Gabriel Bouys/AFP/Getty Images
King Digital Entertainment, the London games studio behind the mobile hit Candy Crush Saga, is to make history as the most valuable British internet company to join the stock markets after pricing its initial public offering at $7.6bn (£4.6bn).
The new dotcom fever, together with buoyant stock markets, have boosted King’s valuation by $2bn in less than a month. At $7.6bn it will be valued more than four times higher than Take-Two Interactive, the company behind Grand Theft Auto. Analysts had valued King at $5.5bn in February, but the company said on Wednesday its shares would be priced at between $21 and $24 each.
The popularity of King’s confectionery-themed smartphone and tablet game will make a multimillionaire of its chief executive, Riccardo Zacconi, whose 10.4% stake could be worth as much as $745m, and chairman, Melvyn Morris, who owns a 12.2% interest. Zacconi and Morris, a former director of Derby FC, first worked together at the Midlands-based matchmaking site uDate, which they sold for $150m to Interactive Corporation in 2002.
Between them, the company’s 11-strong management team own shares which at the upper end of the range could be worth almost $2.2bn.
Most are selling a small percentage of their holdings, although staff will be free to sell more shares six months after the flotation. No formal date has been set, but leaks suggest King will come to market on 25 March.
The King pricing came as retailers Pets at Home and Poundland also debuted on the stock market. Poundland was priced at the top of its initial range, valuing the company at £750m, but the shares still soared 19%, adding £150m to the value of the business.
Pets at Home performed less well, closing down 4% from its offer level of 245p. At Wednesday night’s share price the company was valued at £1.2bn .
The King investment is also one of the most successful ever for the British private equity firm Apax, which in 2005 invested around $63m and now owns more than 48% of the shares, making its holding worth nearly $3.5bn.
King’s latest filing with the US markets regulator, the Securities and Exchange Commission, reveals that a minimum of 22.2m shares will be sold in the float, raising $530m, of which about $326m will be kept by the company to invest in expanding its operations around the world. The balance will go to stockholders.
It remains to be seen whether the British taxman will benefit from King’s success, however, because the company moved its tax registration from Malta to Ireland last year. The role of its British subsidiary, which houses games designers and administrative functions in offices near Tottenham Court Road in London, has been defined as the “provision of management services to other companies” in company accounts.
King makes its games available to download for free and most of its money is raised from purchases made during play. Millions have been persuaded to part with £1 for what are called “paid boosters” including lollipop hammers, coconut wheels and extra lives.
Unlike many internet firms joining the stock market or being snapped up by bigger rivals, King has been profitable for four of the last five years, making nearly $570m after tax in 2013 on revenues of $1.88bn.
New data shows that in February, 144 million people were active daily players of King games, reorganising brightly coloured sweets in Candy Crush, bursting their way through levels in Bubble Witch and sorting fruit in Farm Heroes.
The games, which mostly involve making rows of objects explode by lining up three or more of the same shape or colour, have proved highly addictive with King notching up more than 1.4bn plays a day.
King’s valuation, which is based on 315m shares priced at $24, comfortably outstrips that of fellow games company Zynga, which was worth $7bn at its 2012 stock market flotation but has seen its fortunes go into reverse.
Its opening price will mean the company is worth about half Twitter’s initial valuation, but many times the previous UK record set by the demerger of internet service provider Thus from Scottish Power in 1999. The company was then valued at £2.2bn ($3.7bn at today’s exchange rate), while Lastminute.com, which became a poster child for the dotcom crash, floated at £570m in March 2000.
Two US private equity firms are preparing for big returns from their investments in British retailers. Kohlberg Kravis Roberts bought Pets at Home four years ago for £995m. After pricing the offer at 245p a share on Wednesday, KKR and other shareholders will pocket £210m gross from the offer, but the buyout group will retain a 46.2% stake after the flotation.
Warburg Pincus, another private equity group, paid £200m for Poundland in 2010. The discount retailer’s market debut will raise £375m and a maximum stake of 38%.