‘Matrix’ visual effects studio DNEG to go public via SPAC, move into gaming

DNEG Chairman and CEO Namit Malhotra joins Yahoo Finance Live to discuss DNEG going public in a $1.7 billion SPAC deal, recurring revenue streams, the move into gaming, and the outlook for the company's future and its competitors.

Video transcript

[MUSIC PLAYING]

BRIAN SOZZI: Visual effects and animation company DNEG is going public in a SPAC transaction that values the business at $1.7 billion. DNEG: is seen as the leader in the space, having long-term relationships with large content producers such as Disney and Netflix.

Worth noting here, unlike most SPACs, DNEG is profitable and has been profitable for some time. Namit Malhotra is the chairman and CEO of DNEG and joins us now. Namit, congratulations on this deal. Look, I think a lot of folks are very familiar with your work but don't realize you are the company helping to bring a lot of this content to life. What are some of the projects you're working on right now?

NAMIT MALHOTRA: Thanks for having me. It's a pleasure to be talking to you and showcasing the company on this next phase. We obviously have a big bouquet of projects. Recently, we obviously worked on projects like "Matrix" and "Dune" and James Bond and what's coming up in the next little bit are projects like "Shazam 2." We're doing that for Warner Brothers and New Line.

We're working on a bunch of TV shows like "Stranger Things." And you know we've got a bunch of animation projects as well, like "Garfield," which we're producing. So there's a massive slate of projects that we're currently working across all our different offices.

BRIAN SOZZI: For those on our platform, Namit, that are sizing up your company and soon your stock, what are some of the biggest drivers? Is one of them streaming? And do you play in gaming yet?

NAMIT MALHOTRA: So we are using a lot of game engine technology in our current workflows. And that's where we believe the next phase of our business is headed towards is the convergence of gaming and what we do. See, when we work on a project like "Uncharted," which is a rendition of a video game into a movie, we are actually now-- we believe that that happens because of our quality profile and our technology profile.

And we can produce assets that are very high-quality and which we believe can now be transferred onto the gaming world, which is where, I think, the gaming industry wants to go. So that's something that's going to happen imminently and very, very organically.

That being said, the tailwinds in our industry are massively being driven, especially with the pandemic, on the back of the streaming universe of content, which is only growing at a faster and faster clip. And that creates a lot of opportunity for companies like us to be able to really bring our absolute tier one profile of high-quality imagery and storytelling capabilities to this massive gap that's been created because of each streamer and each big content player now wanting to own and operate on their own library.

JULIE HYMAN: Namit, it's Julie here one of the challenges that poses as well is getting good people, right, and competing with gaming with the other visual effects houses to get good people as well. And I noted in your investor presentation, that one of the reasons you're going public is to be able to offer stock options to folks of a public company. Talk to me about that competition for talent and what it's like now versus a year ago, five years ago, for example?

NAMIT MALHOTRA: Well, see, there's always been-- at the very high end of any business, there's always going to be a dearth of good enough talent out there. All I can show from the history of our revolution, when we acquired Double Negative in 2014, we were about 700-800 people in London. We were about 7,000 globally. We were about 8,000 people right before the pandemic.

So we've actually shown that we can actually globalize and operationalize different sites. And access to talent therefore becomes a little easier because of the way our platform is designed, our tech tools are designed, where we can train and bring people onto their best capability at a much, much faster clip than, let's say, most of our competitors can. So that's a big differentiator.

The other is that having a deep historic bench of a massive talent pool in India certainly helps. We know that there is no shortage of people. What they need is a lot of training and support. And that's what the company has already built over the last--

Let me say, almost 15 years of my journey has been about building and scaling that part of the world to be able to deliver high-quality product for whatever we do. So as part of the journey we're on, it's just that today, our ability to scale is a little bit more, let's say, stable because we don't have to worry about what happens a year or two years from now.

We have future visibility. We have much better order books and a much stronger demand curve. So we can be investing in training and new technologies whilst opening up new offices that make access to that talent much more, let's say, comfortable or easier. And that sort of gives us, I think, a unique position to any of our competitors who, fortunately or unfortunately, don't have that sorted because our genesis itself as a function of East meets West.

I came from setting up a very successful capability in India and then acquired companies in the West. So we kind of brought the two worlds together in our journey. And that takes a lot of work and a lot of effort and really integrating and aligning culture, behavior, training. And that we've sort of done and established through our last many years of building this company.

BRIAN SOZZI: Speaking of journeys, talk to us about your journey. Am I correct that you started this company at 18 years old out of your grandfather's basement?

NAMIT MALHOTRA: Yeah, so I started in Mumbai. That's absolutely right. In 1995, literally in a car garage that my grandfather had bought and my father. And we lived in the same house, but in an apartment in Mumbai. It still exists, by the way.

And at some point, we'll publish pictures and talk about that. But that's literally where I started when I was 18 with an Apple computer and a bunch of guys who taught me computer graphics in a six-week course that I did. And I hired them as my key partners. And we set ourselves up. And that's the sort of journey that we've had.

BRIAN SOZZI: Well, a very interesting story here. Congrats on the upcoming debut, Namit Malhotra, chairman and CEO of DNEG, good to see you.