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DNEG, the animation and vfx studio with offices in London, Vancouver, Mumbai, Los Angeles, Chennai, Montréal, Chandigarh, Bangalore, and Toronto, has backed down from its plans to go public by way of a SPAC merger.

Background. Early this year,  DNEG announced it was going public via a merger with a special purpose acquisition company, or SPAC. At the time, the company planned to merge with NASDAQ-listed Sports Ventures Acquisition Corp. The resulting company would have stuck with the DNEG name and was valued at around $1.7 billion at the time. It would have been led by Namit Malhotra, DNEG’s CEO and chairman.

What’s a SPAC? A special purpose acquisition company, or SPAC, is a type of “blank check company” that has no commercial operations of its own and exists solely to raise money through an initial public offering (IPO) for the purpose of acquiring or merging with an existing company. The SPAC has a set period of time, typically around 24 months, to make an acquisition. If no deal is made, the SPAC is dissolved and investors get their money back.

So why is the deal off? On Thursday of last week, the two companies released a joint statement in which they cited “current unfavorable SPAC market conditions and other factors.” Stock markets around the world have been volatile recently, which has had an adverse effect on initial public offerings. Further, SPAC deals are quickly falling out of favor. According to a New York Times report last week, “After two hot and heavy years, during which investors poured $250 billion into SPACs, rising inflation, interest rate increases and the threat of a recession are fomenting doubts.”

What are the consequences of the cancellation? For backing out, DNEG had to pay a termination fee of $1.5 million, according to an SEC filing. Long-term however, the future looks bright for the company. Thursday’s announcement came days after DNEG released a business update in which it announced that the company had exceeded revenue targets for its fiscal year which ended in March, generating revenue of $409.3 million, net income of $39.3 million, and adjusted EBITDA of $100.6 million, equating to year-over-year growth of 33.5%, 214.7%, and 22.4%, respectively

Last Wednesday it announced that Erika Burton was shifting over to become co-president of DNEG Animation. (She will share the animation president title with Tom Jacomb. Previously, Burton was previously president of vfx production at the studio.)

In May, DNEG agreed to an extension of its $350 million partnership with Netflix, for whom DNEG has done vfx work on Stranger Things and Glass Onion: A Knives Out Mystery, and is handling animation on upcoming titles Nimona and Entergalactic, among many other projects. DNEG also seems to be the favorite animation studio of up-and-coming U.K. production company Locksmith Animation, who hired DNEG to handle animation for Ron’s Gone Wrong and their upcoming holiday feature That Christmas.

DNEG’s move into character animation bolsters its existing activities as a top vfx studio, whose recent projects include Tenet, Dune, and No Time To Die, as well as the upcoming titles Bullet Train and Shazam! Fury of the Gods.

What the companies are saying? In the release announcing the cancellation, Malhotra said: “Due to the headwinds in the SPAC marketplace and general market volatility, we have decided to terminate our SPAC process with Sports Ventures. Alan and the team at Sports Ventures have been great partners in this process, and we wish them well as they move forward. 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. 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.”

Alan Kestenbaum, CEO and chairman of the board at Sports Ventures, added: “Due to current SPAC and equity market conditions, it was mutually determined that the best option for all parties at this time is to terminate the transaction. 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.”

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