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Finances: Is Evolve MMA really worth $360 million?

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A look inside Evolve MMA’s finances, and one particularly interesting transaction.

Photos: Shinya Aoki and Evolve MMA teammates train for ONE FC 8
Shinya Aoki and Evolve MMA teammates train ahead of ONE FC 8.
Anton Tabuena

Recently Bloody Elbow examined the finances for ONE Championship, utilizing filings with the Accountant and Corporate Regulation Authority, which is Singapore’s version of United State’s Security and Exchange Commission. Since other noteworthy MMA entities have filed with ACRA we thought it might be worthwhile to take a look at the financial statements for Evolve MMA, as well as relate an interesting transaction involving their shareholders.

The Evolve Group Pte Ltd, the corporate entity that does business as Evolve MMA, was founded by Chatri Sityodtong. Chatri is also the founder and CEO of ONE Championship. Where as ONE is mostly thought of as a promotion, Evolve bills itself as being “Asia’s #1 mixed martial arts gym.”

Currently Evolve has four locations in Singapore, where it serves as not only a training facility for a multitude of professional fighters but also offers classes and personal training for non-professionals. The sole director is listed as Clara, who shares the same address as Clara Leon, who is listed on her LinkedIn account as the Senior Vice President of Evolve MMA.

Clara Leon is also widely reported as Chatri’s significant other. He described her as “my love, my best friend, and my partner in everything.”

Clara was listed as having a 51% controlling interest in Evolve. On August 11 2020, her shares were apparently transferred to Warrior Group Pte Ltd, a company incorporated and domiciled in Singapore, which then become the holding company for Evolve. Clara is also listed as the sole director of Warrior Group.

FINANCES

Evolve saw gains in both their overall revenue and profits from 2018 to 2019. For the FY 2018 their revenues were S$13,739,851. This grew to S$15,297,382 the next year. Profits after taxes also increased from S$293,799 in 2018 to S$430,879 in 2019.

Evolve Revenue

- 2019 2018
- 2019 2018
Revenue 15,297,382 13,739,851
Direct costs -4,064,405 -3,816,462
Gross profit 11,232,977 9,923,389
Other income 222,529 238,343
Less
General and administrative expenses -7,561,077 -7,391,018
Selling and marketing expenses -1,983,952 -1,172,988
Finance costs -559,400 -400,973
Other operating expenses -550,947 -544,037
Other expenditures -191,388 -142,622
Impairment loss on trade receivables -62,919 -86,720
Profit before tax 545,823 423,374
Income tax expense -114,944 -129,575
Profit for the financial year 430,879 293,799

The bulk of Evolve’s revenues come from membership fees, with private classes being the next biggest generator of sales. Both of these saw healthy increases from 2018 to 2019. Membership fees - which represented 88% of their revenues, grew more than 10% from year-over-year. Meanwhile private classes - which were roughly 5% of their total revenues in 2018 - grew 37% in 2019, making them almost 7% of their total revenue.

Revenues

Disaggregation of revenue 2019 2018
Disaggregation of revenue 2019 2018
Membership fees 13,407,571 12,148,873
Merchandises 460,506 471,346
Private classes 890,655 649,584
Food and beverages 23,861 34,858
Vacation program 189,622 192,818
Subscriptions income 25,349 33,953
Early termination penalty fee 46,622 44,928
Seminar income 207,050 127,066
Cryotherapy 34,784 27,173
Others 11,362 9,252
Other Income
Management fees 158,306 63,163
Grant 37,514 46,529
Service fee income - 112,963
Others 26,709 15,688

Based on their financial statements Evolve looks like a fairly healthy company, with solid profits and no debt holding them down. At least one investor though seems to think that they are worth a lot more than their current revenues and profits might suggest.

In their 2019 financial statement (as well as in their 2017 and 2018 financial statements) Evolve reported 132,979 total shares with a total valuation of S$2,360,805. This was made up of 107,979 ordinary shares, with a value of S$1,440,000 total (or S$13.34 each share) and 25,000 preference shares with a total value of S$920,705 (or S$36.83 each share). For 2018, they also reported paying an interim tax-exempt (one-tier) dividend of S$4.51 per ordinary share.

Until 2018, the only two shareholders were apparently Clara and Mission Street Pte Ltd, an investment holdings company based in Singapore. According to Mission Street’s Year ended 31 March 2016 Financial Statements:

On 16 April 2016, the Company has acquired additional 6,915 shares of The Evolve Group Pte Ltd ordinary shares for a consideration of S$1,000,000. Subsequent to the acquisition, the Company effective interest in the Company has increased to 40.00%.

Mission Street’s next few Financial Statement filings showed additional acquisitions of Evolve shares. By March 31, 2017 they reported their shares having a total valuation of US$7,006,000. This rose to US$9,849,000 by March 31, 2018, at which time they held 65,160 shares (40,160 ordinary shares and 25,000 preferences share). This gave them a 49% interest in Evolve, with Clara holding the remaining 51% or 67,819 ordinary shares.

THE TRANSACTION

Mission Street revealed in their Financials Statement for March 31, 2019 that:

On 21 November 2018, the Company has entered into a sales and purchase agreement with a related party, to dispose 26,462 shares in Evolve at a consideration of US$71,764,944 or US$2,712 per shares.

This related third party was Polk Resources Asia Pte Ltd. According to Polk’s Financial Statement for Year ended 31 December 2018:

On 2 November 2018, the Company entered into a Sales and Purchase Agreement with a related party to acquire 26,462 ordinary shares or 19.9% equity interest in The Evolve Group Pte Ltd, a company incorporated in Singapore, for a consideration of US$71,764,944.

Mission Street, after selling 19.9 interest in Evolve, now held 13,698 ordinary shares and 25,000 preferred shares - a 29.1 percent controlling interest in Evolve - which they valued at U$104,992,111.

To clarify: at the end of 2017, Mission Street estimated that the fair value of 40,160 ordinary shares and 25,000 preferred shares at U$9,849,000. At the same time, Evolve was estimating the valuation of all of Evolve’s shares at S$2,360,805. The very next year Mission Street sold approximately 40% of their shares to Polk for US$72 million while their remaining shares were now revalued at US$104,992,111.

This implies a total valuation of $360.6 million for Evolve.

A few months after the transaction, Mission Street paid out a dividend:

On 25 February 2019, the Company has approved a single-tier tax exempt interim dividend amounting to US$70,000,000 or US$12.097 dividend per share. US$50,000,000 of the dividends were paid on 25 February 2019. The remaining dividend of US$20,000,000 was included in the other payable as proposed dividend.

According to a quick internet search, “single-tier tax exempt” dividends are allowed in Singapore and mean that shareholders don’t have to pay taxes on the dividend.

Mission got a qualified opinion from its auditor for the fiscal year ending March 31, 2019, in which they noted that Mission’s $104 million valuation for its stake in Evolve is based on a single transaction to a single purchaser.

Here are the Grandeza Pac auditors note concerning the Evolve share prices:

Emphasis Of Matter

Fair value measurement of other financial assets amounting to US$104,992,111

Without qualifying our opinion, we draw your attention to notes 7 of the financial statements. The Company has investment in Evolve Group Pte Ltd (“the Evolve”). On 21 November 2018, the Company has entered into a sales and purchase agreement with a related party, to dispose 26,462 shares in Evolve at a consideration of US$71,764,944 or US$2,712 per shares.

Accordingly, the Company has determined the price of US$2,712 to be the open market price of Evolve and use this to revalue the investment that is classified as FVPL. Consequently, a gain on fair value of US$104,992,111 was recognised in the current financial year.

The transaction price from single transaction with single party may not reflect the open market price of the investment. Had the company performed a different valuation, the fair value of the investment and results of the year may differ with the amount recorded.

Our opinion is not qualified in respect of this matter.

Mission Street’s sole shareholder is listed as Mission Holdings Ltd, which is based in the Cayman Islands. The company’s two directors are listed as Saurabh Kumar Mittal and Loo Yau Soon.

If Mittal or Mission Holdings names are familiar it’s likely because they both hold shares in ONE Group Holdings.

According to ONE’s most recent ACRA filings, Saurabh Kumar Mittal holds 4,963,510 ordinary shares and 1,070,335 preferences shares, while Mission Holdings holds 4,963,510 ordinary shares and 1,070,335 preference shares. Mittal also holds shares in Mission Holdings.

Chatri Sityodtong relationship with Mittal and Loo goes back to their time as classmates at Harvard. Chatri has described Saurabh Mittal as “my best buddy from Harvard.” According to Tornado Insider, Chatri launched the startup Next-door Networks in 1999 with his former Harvard Classmate Loo Yau Soon.

Mittal and Soon are both also listed as two of the three directors for Polk Resources Asia Pte Ltd. The third is listed as Shelly Smith. Polk Resources Asia Pte Ltd also has a single shareholder, Reyna Infracon Private Limited.

Excerpt for Reyna Infracon Private Limited Annual Return for financial year 01/04/2017-31/03/2018 form No. MGT-7 from India’s Ministry of Corporate Affairs (MCA)

Reyna Infracon is an Indian company based in New Dehli, whose main activity as listed by the Ministry of Corporate Affairs (MCA) as real estate. Saurahb is listed as a directors for the company alongside Santosh Kumar Mittal, who is also Saurahb’s father.

Santosh is also listed as the director of Hespera Reality Private Limited, which is also apparently a holding company for Reyna Infracon according to the MCA.

Excerpt for Reyna Infracon Private Limited Annual Return for financial year 01/04/2017-31/03/2018 form No. MGT-7 from India’s Ministry of Corporate Affairs (MCA)

So what makes this transaction so interesting? Well, for one, the sudden increase in Evolve’s valuation is just noteworthy. It is not often that a company sees its valuation increase more than one hundred fold in a few years.

Secondly, both Polk and Mission share the same directors. In addition, we know Saurabh Mittal is a not only director at Reyna Infracon (along with his father) but also at Hespera Reality, a holding company for Reyna and that he hold’s shares in Mission Holdings, the sole shareholder of Mission Street.

On the surface this does not appear to be an arms-length transaction. As such, according to pricing regulations for Singapore companies, we should perhaps wait for a 3rd party to purchase shares in Evolve before trying to determine it’s valuation.

Bloody Elbow reached out to Evolve MMA and Reyna Infracon for comment on this story. At this time of writing no responses have been received.