The acquisition seems to have significant strategic merit in favor of PhantomFX:
- Reputation: Tippett Studios carries a legendary reputation, particularly with Phil Tippett’s iconic contributions to stop-motion and CGI.
- Market Positioning: PhantomFX can position itself as more than just a technical support provider. Tippett Studios’ creative expertise and vision can help PhantomFX establish itself as a creative force on the international stage, potentially changing the perception of Indian VFX studios in the global market.
- Client Base: Access to Tippett Studios’ client base opens up new opportunities for PhantomFX to work on prestigious projects and build relationships with major players in the industry.
However, PhantomFX does not match Tippett Studios’ reputation and the acquisition seems somewhat undervalued [1]. So, why did Tippett Studios agree to this acquisition? Do they expect major downturn in the industry and want an exit strategy?
[1] Valuation Note. PhantomFX expects 20-25% of their FY25 annual revenue growth to come from Tippett Studios. They are expecting a growth from ₹90-95cr in FY24 to ₹130-140cr in FY25, which puts the revenue expectation from Tippett Studios at ₹8cr, approx. $1m. They have 80% share, hence Tippett Studio annual revenue is estimated around $1.25m and the company is valued at $4.375m. Assuming 20% profit margin, PhantomFX paid a FY25 P/E of 17.5.
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