Visual Effects Studio DNEG To Go Public Via SPAC Merger

DNEG Deal Underscores Production Companies’ Constant Push for Content

DNEG, a major player in the Hollywood visual effects industry, is going public by merging with a special-purpose acquisition company, or SPAC. The deal values the studio at nearly $1.6 billion. DNEG is best known for its work on Oscar-winning movies such as Inception and newer titles including The Matrix: Resurrections and James Bond film No Time to Die.

Industry observers note the merger comes as major production companies like Netflix (NFLX) and Disney (DIS) are spending billions of dollars to speed up content creation. As these companies compete for business, it’s a race to produce more television programs and films. Reports say production companies are also increasingly interested in the metaverse and related opportunities.

Special Effects Attracting Investment As Content Blitz Continues

Executives with DNEG say the company is massively expanding. They describe an environment in which production companies are increasingly focused on the ability to scale-up projects while maintaining high levels of quality. A look at some recent investment activity further illustrates the situation.

Weta Digital, a visual effects studio co-founded by The Lord of the Rings director Peter Jackson, sold off major parts of the company for $1.6 billion in late 2021 to Unity Technologies (U), a company that makes video game software. Meanwhile, DNEG sold a 15% stake to an Icelandic venture capital firm for $250 in September 2021. The London-based studio also put off an IPO in 2019, citing market volatility.

SPAC, or “Blank Check” Companies, Increasingly Popular As IPO Alternative

SPAC mergers have become much more common in the past few years as an IPO alternative — especially within the entertainment and video game industries. Sometimes known as “blank check” companies, SPACs raise funds and list on stock exchanges to ultimately merge with a private company and take it public. In essence, if the deal is approved, the private company replaces the SPAC.

DNEG is also raising an additional $168 million private investment in public equity (PIPE) as part of the deal. These funds plus a $230 million round raised last year could potentially be used to help grow the business. DNEG, which was originally known as Double Negative, also has new credit and term loan facilities to tap in case sentiment sours. Zooming out, the company looks financially prepared to navigate the need for more content.

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