DNEG, the London-headquartered visual effects and animation house that has won Oscars for the likes of Dune and Tenet and also most recently worked on season 4 of Stranger Things, and special purpose acquisition company (SPAC) Sports Ventures Acquisition Corp., have mutually agreed to terminate their previously unveiled business combination that would have taken DNEG public in a $1.7 billion deal.
The companies unveiled the news early on Thursday, citing the “current unfavorable SPAC market conditions.” Stock markets have been volatile, which has hit activity in initial public offerings and SPAC deals.
The announcement came two days after DNEG released a business update, in which it highlighted that it “outperformed [its] target revenue” for its fiscal year ended March 31, hitting $409.3 million. On Thursday, the company also touted a “record pipeline of new business, reflecting unprecedented demand for its visual effects and animation services.” The firm says it currently has around 8,000 employees, with plans to grow to 10,000.
“Due to the headwinds in the SPAC marketplace and general market volatility, we have decided to terminate our SPAC process with Sports Ventures,” Namit Malhotra, DNEG chairman and CEO, said in a statement.
Alan Kestenbaum, CEO and chairman of Sports Ventures, emphasized that it was “mutually determined that the best option for all parties at this time is to terminate the transaction.” Lauding DNEG, he said: “Namit and his team are leaders in the market, producing stunning and award-winning work that swept the awards this year. DNEG has a bright future, and we wish everyone there much success.” Malhotra paid back the compliment, saying: “Alan and the team at Sports Ventures have been great partners in this process, and we wish them well as they move forward.”
The DNEG boss also expressed his confidence in moving ahead as a privately held company. “We feel incredibly optimistic about DNEG’s future, and the company continues to demonstrate impressive financial results, with our highest-ever revenue growth announced earlier this week,” he said in the statement. “Our strong pipeline reflects the significant demand for our industry-leading visual effects and animation services, as evidenced by our recently announced multi-year deal extension and VFX services renewal agreement with Netflix through 2025.”
In an interview, Malhotra told The Hollywood Reporter that in this context, “we want to make sure that people who work at the company recognize that this is our choice; this is not we couldn’t get it done. We have actually voluntarily stepped away.” He added: “It turns out that the markets in general, with the war in Ukraine and inflation all the volatility, have completely pivoted from growing tech stocks beating all-time highs to suddenly going to the other extreme.”
He described DNEG’s business momentum in contrast to that. “We made projections, we beat them. We signed a multi-year contract with Netflix. In this difficult time of hiring, we have hired record levels of headcount,” Malhotra said. “So for us everything has been as good as it could have been. Why would we put ourselves in harm’s way?… We are a good business, we have done great things and have great opportunities, but the markets are bad. It’s like there’s a storm outside. Do you want to fly a brand-new plane into the storm? Why would you do that? Let the storm pass, you can fly tomorrow.”
With the SPAC deal off the table, “everything is back on the table to actually consider what is the best route for us to take, because we don’t really have any urgent need for financing,” the CEO also highlighted.
DNEG could revisit going public once markets bounce back, he signaled. “I don’t want to say that we won’t consider a SPAC,” Malhotra said. But given growth trends and the fact that DNEG’s performance has attracted attention, the firm could down the line “just go and do a straight IPO.”
He is also focusing on growth opportunities ahead. DNEG has been expanding into feature animation and is also looking to make a splash in content creation in such areas as video gaming, as well as emerging opportunities, such as the metaverse. “Our focus is to just keep expanding what we do and open up other areas,” Malhotra told THR, calling the metaverse and gaming “very potent opportunities that sit in a very sweet spot of what we do.”
Could the push into the metaverse mean the company could be looking for acquisitions? “When the metaverse needs to be built, it is certainly companies like DNEG, which got their own proprietary tech stack and got thousands of people across the world, that are in the best position to actually go out and seize that opportunity,” the CEO argued. “Because we don’t need to buy another company to tell us how to create a virtual world or a virtual shopping center or a digital London. We already have that, we already built it. So if you put it in the metaverse, we can create our own, we already have the tools and the technology for that.”
Malhotra also wants to continue the company’s push into co-production work. Mid-week, a trailer for Brahmastra – Part One: Shiva, a tentpole from Disney’s Star Studios on which the CEO is a producer, debuted, drawing more than 16 million YouTube views in 24 hours. “So it is a big day for us in our journey of not just being a services company, but also being a producing partner,” he told THR. “And I’d love to be able to show the world how we are actually going up the value chain and starting to create content. We also have a co-production with Alcon Entertainment on Garfield, with Chris Pratt as the voice of Garfield and Samuel L. Jackson as his father. That is a big animated film that we are also co-producing.”
Beyond having a financial stake in the performance of the content, Malhotra also sees other benefits of producing. “We get more creatively invested, we take great ownership, our people are involved with the design, the delivery, the execution,” he explained. “It is much more rewarding for everybody in the company.”
Upcoming DNEG projects on behalf of Hollywood partners include the likes of Bullet Train (Sony, July), Black Adam (Warner Bros., October), Glass Onion: A Knives Out Mystery (Netflix, 2022), Haunted Mansion (Disney, March 2023) and Meg 2: The Trench (Warner Bros., August 2023).
