‘Why Would We Put Ourselves in Any Harm’s Way?’

DNEG turned some heads Thursday when it called off a $1.7 billion deal with an SPAC that would’ve taken the VFX giant public. But CEO Namit Malhotra says he’s not alone in recognizing that with the incredible volatility in the marketplace, taking such a step today just wouldn’t make sense.

“Why would we put ourselves in any harm’s way?… Our business couldn’t be better,” Malhotra told Thursday. “Whether you’re an entertainment company or technology company, you’re gonna have to deal with the volatility of the capital market, and I think the writing’s on the wall. Because right now, there are no IPOs or SPACs or financing happening. Nobody’s venturing out, because nobody knows what tomorrow will be in the investor world. Everybody’s cautious.”

DNEG, the London-headquartered VFX company that has won Oscars for “Tenet” and “Dune” and just worked on the latest season of Netflix’s “Stranger Things,” first announced its deal with SPAC Sports Ventures Acquisition Corp. in January. For Malhotra, the wheels started turning on canceling the deal earlier this week, when DNEG released its revenues for the fiscal year that ended March 31. The company boasted that it hit $409.3 million in revenue that beat expectations and also reflected a record amount of VFX business for the company.

That business includes signing a new VFX deal with Netflix, partnering with Alcon Entertainment on a co-production of the upcoming animated “Garfield” movie and even an Indian film called “Brahmastra” that has notched over 25 million views for its trailer in 48 hours and on which Malhotra is a producer.

DNEG is also in production on other properties such as HBO’s “The Last of Us” series, Netflix’s “Knives Out” sequel “Glass Onion,” DC’s “Black Adam” and Sony’s “Bullet Train.”

Malhotra reiterated from this morning’s announcement that the decision to cancel the deal was a mutual one due to “unfavorable markets.” This is despite the fact that DNEG wound up paying its would-be partner a $1.5 million termination fee, as disclosed in an SEC filing and confirmed by .

“You don’t want to take a brand new route, you know, there’s a massive storm out there and you want to say, let’s fly into the storm. Why would you do that? You don’t need to, everything’s good. Just wait for the right time and do what you’re supposed to do,” Malhotra said. “We were making the decision of really doing what’s best for our business. And doing it mutually in a friendly way and saying, ‘Hey, guys, we’ve all spent a bunch of money trying to get here but as far as we’re concerned, as a business, I don’t need to do this [with] where the company’s at.”

Malhotra says that in the short-term, little will change for DNEG’s immediate business plans, but they do have big ambitions in the long-term to expand their operations to both gaming and the future of the metaverse and Web3. Pushing to go public might have accelerated that process, but Malhotra feels that the larger market impacts of the pandemic, the Ukraine war and other factors are making even the biggest tech companies “take a breath” when it comes to investing billions in the metaverse.

And because DNEG has frequently worked as a partner with the biggest tech and entertainment companies on their visual effects needs, their business model is such that they can “take the lead from our key customers” and see how companies like Amazon, Disney or Netflix respond to the next evolution of the web.

“It sort of automatically gives us the confidence or the impetus to do it,” he said. “And that’s something that in the current timeline, everybody’s been just figuring out, ‘Let’s focus on what we’re doing now.’”

Malhotra did add however that just because the SPAC deal has been nixed that it doesn’t rule out the possibility of DNEG going public one day, perhaps just with an IPO, and having done the legwork and gone through processes with the SEC today has paved the way for what they might do in the future.

“Quite frankly, to be able to go public again, it actually becomes a lot easier because fortunately, through this process, the investors that we’ve spoken to or discussed it with have seen the company perform through the times,” Malhotra said. “If anything, it can help build a certain track record of the credibility of the company and the management because they’ve seen it.”