? Announced Acquisitions
Embracer Group (SSE: EMBRAC B) announced 13 acquisitions including 2 mobile-focused studios, 9 PC/Console studios, 1 QA provider, and 1 PR agency for the total purchase price of up to $441.5m:
The total purchase price consists of $232.5m upfront consideration and $209m maximum earn-out payments subject to targets’ performance over the period of up to 10 years;
A typical payment deal structure for Embracer, where ~53% of the purchase price comes as an upfront consideration and the remaining 47% as an earn-out with a relatively long time period for KPI-based payments;
Embracer continues to use equity for M&A financing to align founders’ interests: 15% of the upfront and 50% of the earn-out will be paid in Embracer’s shares;
Embracer proactively leverages its operating units (5 of 13 acquisitions made by wholly-owned subsidiary Saber Interactive) and industry network (Koch Media, Amplifier Game Invest) to identify new M&A targets;
Announced acquisitions could improve Embracer’s performance in the financial year ending 31 March 2022 with total net sales increase by $99m-$122m and operational EBIT increase by $35-$47m. Based on these projections, the cumulative valuation multiples account for:
As a result of the announced acquisitions, Embracer has increased its
international team by 1,259 new employees including 774 developers
number of game development studios by 12 including 2 mobile game studios, 1 PR agency, 1 QA studio, and the remaining PC/Console studios
number of IPs by 19, reaching a total of 214
? Strategic Rationale
This time the two largest transactions were Poland-based PC/Console game developer Flying Wild Hog ($135 upfront / $7 earn-out), known for Shadow Warrior Series, and Canada-based mobile gaming studio Thinking Ape ($31m upfront / $74m earn-out). Acquisition of quality assurance service provider, Quantic Lab, and veteran PR agency, Sandbox Strategies, will benefit Embracer’s ecosystem with a decentralized approach.
While being a diversified business in terms of the value chain (IP-owner, developer, publisher, distributor), Embracer’s primary focus was mid-end premium PC/Console games with relatively low development costs. However, starting this year Embracer expands into:
The mobile space with the acquisition of Deca (~$100m) and recent add-on of A Thinking Ape (~$105m) and IUGO Games. We expect more Embracer’s acquisitions in the mobile gaming sector, which is a great source of recurring revenue, provides diversification of product portfolio, and potential opportunity to increase audience by porting PC/Console games to mobile screens in the future;
GaaS business model implementing post-launch downloadable content, cross-play (e.g. World War Z’s Dronemaster by Saber Interactive), and multiplayer (e.g. Metro series by 4A games) features in the existing hits, which smooths revenue and increases profitability;
The production of AAA games with higher budgets and returns starting with Metro Exodus (by recently acquired 4A Games). The company plans AAA releases for every year ahead.
?Further M&A Activity
Since its IPO in 2016, Embracer has allocated around $1.9B (SEK16.3B) to acquisitions (incl. earn-out considerations and recently announced deals), increased net sales by ~26x times (from SEK 0.3B to SEK 7.3B), and operational EBIT by 22x times (from SEK 90m to SEK 1,953m) — an incredible financial performance improvement over 4 years of operations, leading to 18x times growth in market capitalization.
After the acquisitions, Embracer reports cash at hand and available credit facilities in the amount of more than $986m (SEK 8.5 billion). Moreover, on 16 November 2020, the extra general meeting authorized the board of directors to issue B shares in the amount not exceeding 10% (~$840m) of the total number of shares in the Company
The placement will allow the company to continue acquisitions with equity to establish long term relationships with founders and management joining Embracer group
? Previous Acquisitions
In September 2020, Embracer Group acquired Vertigo Games for up to $136m, including $59 of an upfront consideration and $77m of a maximum earn-out consideration
In August 2020, Embracer Group announced 8 acquisitions: Sola Media, Pow Wow Entertainment, Palindrome Interactive, Rare Earth games, Vermila Studios, Deca Games, New World Interactive, and 4A Games
In February 2020, Embracer Group acquired PC and console game developer Saber Interactive for $150m of upfront consideration with an additional earn-out of $375m
Among the previous acquisitions of the company are Tarsier Studios, Milestone s.r.l., Goodbye Kansas Game Invest, Gunfire Games, Piranha Bytes, Warhorse Studios, 18POINT2, Coffee Stain, Bugbear Entertainment, and Koch Media
