Noah Zivitz

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Enthusiast Gaming Holdings Inc., the Canadian consolidator of e-sports and video gaming platforms, is facing a revolt by its top shareholder, who claims the company's chief executive and board aren't serving investors' best interests.

Greywood Investments LLC said Tuesday it will seek to replace a majority of Enthusiast's directors and remove Adrian Montgomery from his role as chief executive.

In a subsequent release Wednesday, Greywood identified its six nominees for election to Enthusiast’s board, including Dan Petrozzo, a former partner at Goldman Sachs who also global head of technology for investment management at the Wall Street firm; Janny Lee, who Greywood states has “been involved with several billion dollars’ worth” of M&A; and David Goldhill, who is currently chief executive of a telehealth platform called Sesame, and previously served as chief executive of the Game Show Network.

"In the rapidly ever-changing and exponentially growing fields of gaming, e-sports and technology and with the evolution of Web 3.0, it is urgent that change at the highest levels of the company be implemented immediately. Shareholders expect and will tolerate nothing less," Greywood wrote in its letter.

In a six-page letter to Enthusiast's board of directors, Greywood outlined a litany of complaints about the management and governance at Enthusiast. It described Montgomery as a "detriment" to Enthusiast, and decried the lack of alignment between directors and investors; Greywood said it owns more shares in Enthusiast (9.3 per cent) than the entire company's board combined (5.7 per cent).

A filing with the U.S. Securities and Exchange Commission revealed Greywood’s stake of almost 12.5 million Enthusiast shares is largely comprised of 9.8 million shares held by Vantage Trading LLC.

In a statement released Tuesday evening, Enthusiast called Greywood’s opening salvo a “misleading and baseless letter.”

The company’s response largely focused on framing its recent financial performance as indicative of its growth potential, and raised questions about Greywood’s motives and background.

“What is clear is that they have no plan for the company other than to take full control of the board, for their own undisclosed purposes, without offering shareholders a premium. This is evidenced by Greywood’s singular focus on Enthusiast Gaming’s CEO and a list of grievances that have nothing to do with long-term shareholder value,” said Enthusiast, which lined up Norton Rose Fulbright Canada LLP as its legal advisor and Kingsdale Advisors as a strategy and communications advisor.

In an emailed statement Thursday, Wojtek Dabrowski, a spokesperson for Enthusiast and managing partner of Provident Communications, called Greywood’s director nominees “an unqualified, largely untested, handpicked slate” with “no relevant Canadian capital markets experience.”

Enthusiast, which lays claims to more than 300 million monthly viewers across it platforms, reported a 57 per cent surge in first-quarter revenue when it released results last week. The performance prompted RBC Capital Markets Analyst Drew McReynolds to raise his price target to $8.00 per share from $7.00 and stated that he believes the company is at an "inflection point" that showcases its growth potential.

McReynolds is not alone in liking the stock. All seven analysts tracked by Bloomberg have a buy recommendation on Enthusiast, with a 12-month consensus price target of $8.39, implying a potential return of 210.7 per cent from Friday's closing price on the Toronto Stock Exchange.
Enthusiast shares shed 27 per cent year-to-date through Friday, and are down 75 per cent from their peak of $10.87 on April 20, 2021.

“Well, we're living in very tough macro environment for technology companies and growth companies,” Montgomery said in a May 16 interview. “Let's face it, we're living in a world where Microsoft and Apple are both down over 20 per cent, and so it's unfortunate but I don't expect Enthusiast Gaming to be totally immune from that.”

The share-price weakness was called out by Greywood in its letter, saying it thinks Enthusiast should have a market capitalization of US$1 billion to US$2 billion, as opposed to what it described as the company's "anemic" market cap range of US$250 million to US$300 million. At Monday's closing value, Enthusiast's Nasdaq-listing had a market cap of US$281 million.
"With proper leadership and focus we see a realistic path to a US$4-5 billion company," Greywood stated in its letter.