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Interplay takes IPO plunge
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March 31, 1998: 5:46 p.m. ET
The old war-horse of the gaming industry has decided to go public
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SAN FRANCISCO (The Red Herring) - We thought we had cool jobs until we started writing about PC gaming company Interplay Entertainment. Suddenly, we felt downright boring. The interactive gaming software company has filed to go public, and while management is in the SEC-mandated quiet period, we rounded up some big names who know their way around the gaming game.
Todd Vaughn and Ned Lerner are gamers who've been around the industry about as long as Interplay. Mr. Vaughn, deputy editor of PC Gamer magazine, and Mr. Lerner, president of Multitude, an Internet gaming company, know what it takes to make a cool game into a hit and create a stable company in an industry that's more of a roller coaster than Hollywood. Both say Interplay is a good second-tier company that has had its share of strong games, but one which probably needs cash to stay competitive with the big boys in a field increasingly dominated by two or three players.
What are the stakes as Interplay plays Wall Street's ultimate game? The company filed its S-1 on March 23 for a $71.9 million common-stock IPO. Piper Jaffray, Bear Stearns & Co., and UBS Securities are underwriting the deal, which would put the company on the market under the ticker symbol "IPLY."
But if you read the prospectus, you might think the ticker should read "IOU." Although Interplay had revenues of $83.3 million, its losses amounted to $27.2 million for fiscal 1997. And of the $71.8 million to be raised, the company expects to use $27.5 million to repay amounts outstanding under a current bank line of credit. On top of that, it also expects to repay $6.1 million in subordinated secured promissory notes, and $1 million as an accrued bonus awarded to Brian Fargo, Interplay's chief executive officer, by the board of directors in 1994. Interplay also said it expects to use about $1.5 million to pay certain amounts due to Universal Interactive Studios under the terms of an existing distribution agreement.
While we're all for companies paying down their debts, it's apparent that Interplay is gearing up to do so with other people's money -- although one unnamed analyst says the company is hoping for a market capitalization at about 2-2.5 times revenues. If the market bites, then shareholders will have a healthy stake.
Survivors win
But the gaming industry is about fun, not numbers, right? Not exactly. In a sector where the quality of a single title can make or break a company, you're only as good as your last game -- and everyone is at the mercy of retailers. Merely surviving might be deemed success.
In that sense, Interplay is a winner. Mr. Fargo is himself a longtime gamer, and his company dates back to the early 1980s. Compared to startups that count themselves lucky to get a single game distributed, Interplay has a solid history. "Interplay has a good sense of what's appealing, of what will work and what won't," says PC Gamer's Mr. Vaughn. "They've been around a while and know the industry and aren't afraid to experiment." Recent experiments include Descent, a big hit back in 1996. Other titles include Fallout, Stonekeep, and Battle Chess. According to Mr. Lerner of Multitude, although Interplay didn't have much in terms of hits in 1997, "they're expecting a great year out of 1998."
And the gaming industry is a shelf-space business. "The more shelf space you have the more value you have," says Mr. Lerner. And while Interplay is the fifth largest in the business, to some, fifth may not be good enough for Wall Street. "The investment bankers see (the interactive gaming industry) as a giant battle for shelf space where the three finalists have already been chosen," explains Mr. Lerner. That said, he sees Interplay as less speculative than most because "they have real revenues, and depending on which quarter you look at, some strong earnings."
ut when we asked how many other gaming companies have gone public recently, Mr. Lerner responded, half in jest, "Listings? There have only been delistings for gaming companies."
What a living
Mr. Vaughn and Mr. Lerner agree that Interplay should be around for a while. Despite the competition and steady and relentless consolidation, the industry is still growing at an average of 20-30 percent, according to 1996-97 PC Data statistics. And Interplay had the foresight to set up its own distribution subsidiary, which insulates it from the uneven revenues that plague lesser gaming companies. As such, the market may view this IPO as slightly less risky in an industry where doom lurks around every Christmas retail season.
And for those inside gaming, the uncertainties of business are made up for by one surety: work is a blast. "Hey, at least you get to write games for a living," says Mr. Lerner.
--by Peter D. Henig
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