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Embracer Group – 13 Acquisitions For $441.5m

M&A | ANNOUNCEMENT DATE: 18 NOV 2020
WRITTEN BY | 21 Nov 2020
Embracer Group – 13 Acquisitions For $441.5m
M&A
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🎲 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

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09 February 2021
Embracer Group Acquires Gearbox, Easybrain And Aspyr For Up ...
🎲 Announced Acquisitions Embracer Group (SSE: EMBRAC B) announced 13 acquisitions including 2 mobile-focused studios, 9 PC/Console ...
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M&A
Embracer Group
  • Established in 2008

  • Headquarters — Karlstad, Sweden

  • Founded by — Lars Wingefors, Pelle Lundborg, and Nik Blower

  • Video game holding company

  • Embracer Group owns 68 internal game studios (including 4 acquired via current announcement) with more than 7,100 employees and contracted employees in more than 45 countries

  • Financial interim report October-December 2020