Weekly News Digest #42

Keywords Studios acquires Certain Affinity

UK-based Keywords Studios (LON: KWS), a leading gaming outsourcing company, has entered into an agreement to acquire US-based outsourcing games developer Certain Affinity. While the deal’s financial terms remain undisclosed, the official press release provides some details about the structure.

The deal includes an upfront cash payment and an earn-out component, funded by Keywords’ existing revolving credit facility. Certain Affinity’s founder and CEO, Max Hoberman, and his management team will continue to lead the business post-acquisition.

Founded in 2006, Certain Affinity is an outsourcing games developer with over 180 staff members. The company is best known for its work on the multiplayer components of major franchises such as Call of Duty and Halo. Additionally, Certain Affinity has contributed to the co-development of several high-profile titles, including Hogwarts Legacy, Doom (2016), Prey, Hearthstone, and Left 4 Dead. In total, the company has been involved in the development of 40 titles.

As for the buyer, Keywords Studios is the largest third-party game development and services provider, with a market capitalization of over $2.5B as of Oct’24. By the end of 2023, the company generated revenue of $844m and employed 12,000 workers in 70 studios worldwide.

Source: Keywords Public Reports

The company’s size can be largely attributed to Keywords’ aggressive M&A strategy. Since 2020, the company made 24 acquisitions, making it one of the most active acquirers in the industry. Below are some of the most significant deals from recent years:

— In Dec’23, the company acquired UK-based work-for-hire company The Multiplayer Group for $97.1m;
— In Dec’22, it acquired US-based tech company Helpshift for $75m;
— Most recently, in Aug’24, Keywords acquired UK-based third-party developer Wushu Studios for an undisclosed sum.

Source: InvestGame data

As part of this analysis, we’ve created a comprehensive table detailing the company’s acquisitions during this period. If you’d like access to this exclusive data and want to support our work, consider joining us on Patreon.

In May’24, Sweden-based private equity firm EQT entered into a $2.8B acquisition agreement of Keywords Studios, which is expected to close in Q4’24. We’ve covered this deal in detail in one of our previous digests so you can learn more here.

Strategic Rationale

In Mar’24, Keywords reported planning to execute over 65 acquisition deals within ten years. However, it is likely that if the deal closes and the company gets acquired by EQT, these plans might change. But why acquire a new studio now, right before the potential closure of that deal?

Perhaps the deal is in Certain Affinity’s lower valuation after a few setbacks the company has faced. First, Microsoft canceled the development of the Battle-Royale Project Tatanka, and then Transformers Reactivate was transferred to Splash Damage. In Mar’24, the company had to lay off 25 employees, roughly 10% of its workforce.

Looking at the bigger picture, we observe a clear interest in experienced work-for-hire studios like Certain Affinity. In Q1-Q3’24, we observed 13 acquisitions of gaming work-for-hire studios, including Nintendo’s acquisition of Shiver Entertainment, Virtuos’ acquisition of Beyond-FX, and Capcom’s acquisition of Minimum Studio.

The interest in the sector is clear: unlike most companies in the gaming industry, service providers do not necessarily depend on hits. There is nearly always a demand: growing development budgets and massive layoffs make outsourcing one of the best solutions for cutting costs today. With constant demand, there is less risk of failure, while there are many potential benefits from the industry’s future recovery.

Global Gaming Deals Report Q3’24

The InvestGame team proudly presents the Q3’24 Global Gaming Deals Report. In Q3’24, the gaming industry witnessed 176 closed deals totaling over $3.2B, a decline in deal value compared to $4.3B in the previous quarter.

You can read the full Report by pressing the button below.

This quarter’s figures reflect the gaming industry’s maturation post-pandemic, where investors are more deliberate, focusing on sustainability and strategic value rather than chasing short-term gains.

Unlock exclusive insights with our premium Excel dataset for $25 tier Patreon supporters. This resource offers the detailed sheets based on our latest report’s charts, perfect for boosting your research and presentations. Your support fuels our ability to provide more in-depth analyses.

We thank MY.GAMES and Xsolla for supporting this digest.

VENTURE FINANCING

US-based web3 games developer Azra Games has secured $42.7m in a funding round led by Pantera Capital, with participation from A16z Crypto, A16z GAMES, and NFX. The funds will fuel the company’s growth and portfolio expansion, supporting the development of Project Legends, a mobile free-to-play web3 RPG slated for release in Q3’25. This round follows a previous funding round in Jul’24, when the company raised $32.6m, bringing the total funds raised by Azra Games to $68.3m.

US-based tech company Live Aware Labs has raised $4.8m in a Seed funding round led by Transcend, with participation from A16z Speedrun, Lifelike Capital, and other investors. The funding will support the development of the company’s AI-powered management platform. Founded in 2022, the company optimizes game development processes by reducing launch risks and enhancing player retention.

Saudi Arabia-based mobile games developer UMX has secured $4.5m in a funding round from Jetapult. The investor received an undisclosed stake in an all-cash transaction. In addition to the funding, Jetapult will provide further support for developing new titles. Founded in 2014, UMX is known for mobile racing games such as King of Steering. This marks Jetapult’s first investment in the MENA region, and Accel backs the firm.

Cayman Islands-based mobile web3 games developer Flappy Bird Foundation has secured $2m in a Seed funding round led by Kenetic Capital and Scytale Ventures. The investment will support the development of the mobile title Flappy Bird. Initially launched in 2013, the game will be re-released in the Telegram messenger with added web3 features, including its web3 token.

UK-based blockchain games developer Oxalis Games has secured $2m in a funding round co-led by L1D and Arete Capital, with participation from Merit Circle, Selini Capital, EthLizards, and W3GG DAO. The funds will support the development of the company’s upcoming multiplatform farming life-simulator RPG, Moonfrost. The company plans to launch a closed alpha at the end of Oct’24. Oxalis Games previously raised $4.5m in a Seed funding round.

Web3 game World of Dypians has secured an undisclosed investment from IBC Group. The company is developing a multiplayer RPG with web3 elements, currently in closed beta.

PUBLIC OFFERINGS

US-based engagement and rewards company Versus Systems (NASDAQ: VS) has secured $2.5m via a Business Funding Agreement from Aspis Cyber Technologies, which currently owns 39.5% of the company. The funds will help Versus Systems meet the $2.5m shareholders’ equity requirement to maintain its listing on NASDAQ. The initial investment is $500k, with the remaining $2m expected by mid-Nov’24, in exchange for an unsecured convertible promissory note with an exercise price of $4.00 per share. Following the deal announcement, Versus’ stock price surged by 300%, reaching $4.6 per share. Upon shareholder approval and redomiciling to Delaware, Aspis could convert the note and exercise warrants to acquire 2.155 million shares and warrants for an additional 1.077 million, potentially increasing its ownership in Versus Systems to 45.8%.

FUNDRAISING

UK-based VC company 20VC has closed a $400m fund focused on investing in European startups. The fund will be divided between $125m for Seed investments and $275m for Series A rounds. This follows the company’s previous two funds, with the last one raising $140m in Jun’21. 20VC previously invested $116m in a UK-based mobile games developer, Tripledot Studios, in Feb’22.