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insider dealing

English opening: how World Chess made its IPO

Author: Marc Mullen

Published: 14 Jul 2023

chess pieces king queen smoke smoking board ICAEW Corporate Financier Insider Dealing World Chess IPO

At one point it looked like the World Chess IPO was heading for stalemate, but coming up with a strategy and acting on it meant there was a successful end game, with the company listing in London in April. Marc Mullen reports.

Businesses looking to list want to persuade investors how ‘sticky’ their customers are – and maybe there are none more sticky than chess players. Chess might not have been the commercial heavyweight it could have been, but according to figures from the United Nations there are 605 million adults around the world today who play the game regularly. That’s not bad given that it has its origins in India, around 1,500 years ago.

It is believed that there are more chess players globally than ever before, with the various lockdowns making online chess hugely popular. Interest in the West among younger people was prompted by the 2020 hit Netflix series ‘The Queen’s Gambit’, about a young female orphan turned international chess champion. And last year, chess had its own soap opera when Norwegian world champion Magnus Carlsen lost to 19-year-old American Hans Niemann in a tournament in St Louis and accused the younger man of cheating. That hit mainstream press – but all publicity is good publicity?

chess boards players competition club bar ICAEW Corporate Financier Insider Dealing World Chess IPO
World Chess opened its first chess club/bar in Berlin just after its listing.

In April, World Chess listed on the London Stock Exchange Main Market. The company has a long-term partnership with the International Chess Federation (FIDE), which governs the sport, and it aims to commercialise a game that has huge potential by becoming a leading platform for online, hybrid and, through a chain of ‘chess bars’, real-life networks for chess players. The market capitalisation on listing of £41.7m and the £3m it raised is dwarfed by other gaming listings, though – in November 2021 US-based Devolver Digital raised £190m and was valued at £695m when it listed on AIM, with its games such as Hotline Miami far more monetised than chess.

Board opens up

For many, the high point of the game was in 1972, when American Bobby Fischer played Soviet Boris Spassky in a sports hall in Reykjavik, and the world watched the Cold War playing out on the chess board. “Now, more people are playing chess than ever before,” says Ilya Merenzon, CEO of World Chess. “Smartphones and computers have linked people across the world so they can find someone at their level, which was often the difficulty – now that takes less than a second.”

Around 10 years ago, Merenzon and a colleague had become involved with FIDE when setting up sponsors for World Chess Championship events. He realised the approach was “not visionary enough” and the potential of so many people “just enjoying playing the game” was huge. 

“A few other companies are exploring chess and its potential and they’re very big companies. But despite the age of the game, the space is still young – and then there is the internet. There is so much potential,” says Merenzon. “There are a lot of commercial opportunities, but very few have been taken up.” 

With its access to funding – and the publicity that comes with a public listing – an IPO seemed the best way forward to fund the huge growth potential Merenzon could see.

“When I planned the business, I thought a listing would be possible,” he says. “The UK made most sense because we held some of the major events there, the media was based there, the accounting envelope fitted and the sponsorship and business was focused on the UK, too. And, of course, London is such a financial hub.”

Towards the end of 2020, David Coffman, head of corporate finance at Novum Securities, was introduced to World Chess by Simon Charles, joint senior partner at Marriott Harrison, who was providing legal advice to the organisation. “The latent popularity of chess had become much more evident and with that the immense potential for the company,” says Coffman. “In the online offering, bearing in mind this is just one of several revenue streams of the company, I recognised certain similarities to the online gaming industry, which I have had quite a bit of exposure to. With far less competition than casinos or sports books, the offering was likely to be much stickier and have far lower churn.”

Novum took on the role of financial adviser for the IPO. The process was under way by early 2021 and with lockdown restrictions still in place, all of the initial assignment work was carried out remotely. Coffman and the Novum team did not actually meet Merenzon and fellow co-founder Matvey Shekhovtsov until early 2022 due to travel restrictions, but there were regular weekly or bi-weekly Zoom calls to maintain momentum. “However, due to the passage of time, historic financial information got out of date, so more up-to-date numbers needed to be produced, which caused further delays,” says Coffman.

Russian defence

Then in February 2022, just as they were getting ready to start marketing, Russia invaded Ukraine and the deal had to be paused. Merenzon and Shekhovtsov and a now-former director all held Russian passports, the majority of staff were based in Russia and, through a subsidiary, the group also owned a chess club in Moscow.

“We had no choice but to pause the transaction and ‘de-Russify’ the business,” says Coffman. The Russian subsidiary was sold, the director resigned and Merenzon and Shekhovtsov relocated to Berlin. The move had been in process before the invasion – they wanted to be based in western Europe, near to the markets where they were raising capital and where likely sponsors were headquartered – but it became accelerated somewhat. Most staff moved to Berlin, which became the base for its headquarters, and a key development contract was moved from Russia to Kyrgyzstan. 

“Once this had been completed, we started the process again,” says Coffman. “But a further new set of historic financial information was required, which led to more delays.

“Once the conflict started, it was clear that we would not get through the Financial Conduct Authority (FCA) eligibility process until we had made changes. We paused the process and did not re-engage with the FCA until we believed it would be supportive.”

They had to prove there were no breaches of sanctions and the sanctions regime changed several times during 2022. They also had to introduce policies demonstrating that anyone the organisation did business with was not in breach of sanctions. The changes made were disclosed in the prospectus.

“Obviously the war is a terrible thing,” says Merenzon. “But it was a huge distraction for us, not only for the listing process, but for the business, too. We had planned to leave Russia before the war started, but not in that short a timescale.”

chess boards players competition club bar ICAEW Corporate Financier Insider Dealing World Chess IPO
World Chess plans to open more chess club/bars in Tokyo, Australia and London.

Developing strategy

In May, just after the listing, World Chess opened its first chess club/bar in Berlin. The management team (see Key Pieces, below) has a lot of insight into the potential for such clubs, having been involved in organising championship matches for almost a decade. The structure is in place for growth, says Merenzon: “Right now, our idea is to scale the clubs, to open one in Tokyo, one in Australia and one in London. It requires scalability capacity which, with the team we have, we can do.”

Aside from the chess clubs, there are many channels for growth. Different, faster variations of the game are being played and can be broadcast. With a younger audience, chess is gaining prominence on Instagram. Talent management and merchandise have potential and, of course, there is the online opportunity.

The funds will be used mainly for developing the online platform and for marketing initially. Despite all that potential, getting the deal over the line was in no small part down to the advisers, says Merenzon, the calm chess player in him coming out. 

“It was straightforward if you ignore all the unusual situations, but it was extremely well structured, so we knew exactly what we had to do. We just had to be patient.”