Streaming games service OnLive was reportedly sold for under $5 million when venture capitalist Gary Lauder bought the remains of the struggling company earlier this summer.
The San Jose Mercury News is reporting that OnLive owed at least $18.7 million dollars at the time of its sale, a number that didn’t include any of the company’s future payments. Since the service was failing and profits were fading fast, OnLive decided to liquidate its assets in order to pay back as much of its debts as possible, rather than continue to try raising capital.
Fearful of the possibility of not being able to find additional funding or proper buyers, OnLive decided to forego traditional bankruptcy—which would have seen pieces of the company sold off in various auctions—and opt for what’s known as an Assignment for the Benefit of Creditors (or, ABC). In English, this meant that OnLive was sold as a whole, transferring all its assets to another company so that the overall damage could be lessened as much as possible.
Enter Lauder, who reportedly formed a new company called OL2 just three days prior to OnLive’s massive layoffs. After doing that, Lauder spent just $4.8 million to acquire virtually all of the company’s assets, including the name “OnLive” itself.
“Had the sale to the buyer not taken place, the assignee would have been left with inadequate capital to fund the significant costs to preserve and market OnLive's patents and other intellectual property, thus greatly reducing expected recoveries essentially to those of a forced piecemeal auction," said Joel Weinberg, CEO of Insolvency Services Group (the company essentially handling OnLive’s bankruptcy processes) in a letter obtained by the Mercury News.
The most intriguing aspect of the report has to be the $4.8 million number itself, which is, frankly, an astonishingly low number for a company as well-recognized as OnLive. When you consider the fact the cloud gaming service’s chief rival, Gaikai, was purchased by Sony for $380 million just last July, it’s doubly amazing.
It is worth noting, though, that OnLive’s creditors could theoretically get together and claim that the company’s assets were worth more than that figure, but that would then force the company into involuntary bankruptcy.
In a statement, the new OnLive commented on the matter, saying that the company’s core problem was due to poor financial planning rather than a failed business model.
“When planned financing didn't work out, the company was left with few options. Transitioning through this unexpected event has not been easy, but it has left the company much healthier."