? Announced Acquisitions
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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:
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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;
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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;
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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;
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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;
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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:
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As a result of the announced acquisitions, Embracer has increased its
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international team by 1,259 new employees including 774 developers
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number of game development studios by 12 including 2 mobile game studios, 1 PR agency, 1 QA studio, and the remaining PC/Console studios
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number of IPs by 19, reaching a total of 214
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? Strategic Rationale
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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.
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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:
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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;
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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;
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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.
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?Further M&A Activity
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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.
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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
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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
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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
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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
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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
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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
