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Motorsport Increases Stake In 704Games; Street Remains Bullish

Motorsport Games has entered into an agreement with PlayFast Games to acquire PlayFast’s stake in 704Games Company. Shares of Motorsport were up about 2.9% in Friday’s extended trading session. The transaction is expected to close on April 1.

Motorsport (MSGM) develops racing games and is the video game developer and publisher for NASCAR. It will acquire 30,903 common shares of 704Games from PlayFast. In exchange, PlayFast will receive 366,541 Class A shares of Motorsport and a cash amount, which will be decided based on Motorsport’s share price over the last ten days of March.

The total transaction value is expected to land at about $10.75 million and increases Motorsport’s stake in 704Games to 89.9% from 82.2%.

Former CEO and chairman of NASCAR and a principal investor in PlayFast, Brian France, said, “As an investor in 704Games prior to Motorsport Games acquiring over 50% of 704Games in 2018, it is evident to me that Motorsport games’ involvement has substantially improved all aspects of 704Games.”  (See Motorsport Games stock analysis on TipRanks)

Furthermore, Motorsport is also offering same per share consideration to the other minority stakeholder in 704Games, Ascend FS. The latter owns 10.1% in 704Games and has been given a March 17 deadline to accept the terms by Motorsport.

If Ascend FS accepts the offer, then Motorsport will own 100% of 704 Games. Motorsport expects the acquisition to be accretive to its bottom line in 2022 and subsequent years.

On March 4, Canaccord Genuity analyst Michael Graham maintained a price target of $40 (57.1% upside potential) on the stock and reiterated a Buy rating.

Graham said, “Motorsport stock has recently been under pressure along with several other gaming stocks and the broader tech sector, but with a strategic footprint that is rapidly improving and important catalysts in coming months (1Q report on March 24 and launch of NASCAR NXT in 3Q), we see this as an attractive level for the stock.”

The other analyst covering the stock, Benchmark & Co’s Mike Hickey, also rates it a Buy. The two ratings add up to a Moderate Buy consensus rating alongside an average analyst price target of $41 (61% upside potential).

Motorsport scores a 5 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock may perform in line with the broader market.

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