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EQT to Acquire Keywords Studios for $2.8B

WRITTEN BY | 21 May 2024
EQT to Acquire Keywords Studios for $2.8B

This article is based on our Weekly News Digest #20 from 20.05.2024. If you want to receive such analyses first, subscribe to our weekly newsletter. There, we analyze the most significant deals, elaborating on the financials and strategy behind them, while also covering the smaller transactions of the week.

EQT to Acquire Keywords Studios for $2.8B

Sweden-based private equity firm EQT is in advanced discussions to acquire UK-based outsourcing company Keywords Studios (LON: KWS) for approximately $2.8B (£2.2B). The proposed offer of £25.50 per share represents a substantial premium of approximately 73% over Keywords’ closing share price of £14.70 last Friday. In the joint statement, Keywords Studios confirmed the ongoing discussions with EQT. Let’s dive a bit further into the potential deal.

Keywords Studios — the largest outsourcer of the industry

Keywords Studios is a premier provider of technical and creative services to the video game industry. Today, the company is an all-in-one service provider that can assist studios during each stage of the game production.

In 2023, the studio generated $844m (€780m) in Revenue and $139m (€109m) in EBITDA, representing the multiples of 3.3x EV/Revenue and 20.1x EV/EBITDA.

The company’s revenue grew 48.76x over ten years. Keywords’ active M&A strategy facilitated a big part of this growth. Since 2019, the company has closed 30 deals to expand its capabilities and add new technologies and services to its offer.

As a result, Keywords has become the biggest outsourcing company in the video games industry. It operates over 70 studios with over 12,000 people across three divisions: Create, Globalize, and Engage:

— Create: focuses on production, employs 4,500 people;

— Globalize: dedicated to testing, localization, and audio services, has a workforce of 5,000;

— Engage: handles marketing and player engagement and employs 2,500 individuals.

One prime example of its dominance is that its services were used in 13 out of the 18 winning titles (72%) at the 2023 Game Awards, including the two most rewarded games: Baldur’s Gate 3 and Alan Wake 2.

Screenshot 2024 05 21 At 01.46.01

Source: Keywords Studios 2023 FY Results Presentation

We’ve been writing about Keywords Studios for quite some time, so feel free to explore our backlog of articles on the company on InvestGame’s website.

Strategic Rationale

In Oct’22, EQT, known for its strategic investments in the technology and media sectors, completed the $7.5B merger with Baring Private Equity Asia (BPEA). BPEA, in turn, owns a significant stake in Virtuos, one of the largest work-for-hire studios globally. In Sep’21, BPEA was a leading investor in Virtuos’ $150m funding round. Thus, acquiring Keywords Studios can significantly increase EQT’s presence in the gaming industry.

Since the rise of advanced artificial intelligence in 2023, much discussion has been about its potential to transform and optimize many production processes in the video game industry. AI models can improve art production, fully cover multi-language localization, and assist in programming, among many other scenarios. In theory, this might negatively influence the demand for the company’s services. 


Keywords Studios share price dynamics. Source: Yahoo Finance

This threat, along with the overall macroeconomic instability and low multiples on the markets, has resulted in a significant decline in the company’s market capitalization. This is why the premium might reflect Keywords’ belief that the stock price should have been closer to that before the plummet. As mentioned above, Keywords rejected four previous offers from EQT because of the low offers.

The current proposal represents a significant increase compared to the previous ones. Keywords highlighted the strategic alignment and growth opportunities that could arise from this deal, so the offer has all the chances of being taken if EQT makes it official. The company has until June 15th, 2024, to confirm.

The other potential scenario is that someone will try to outbid the EQT. For example, we have already seen this happen with Codemasters, another UK-based gaming company. In Dec’20, Electronic Arts outbid Take-Two’s offer and acquired Codemasters for $1.2B.

With AI challenges, outsourcing still makes a lot of sense in 2024, so more bidders might appear. Unlike the majority of 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.

Expanding into the gaming industry through a service company might be one of the safest ways for EQT in times of uncertainty. With constant demand, there is less risk of failure, while there are many potential benefits from the industry’s future recovery. Since deals like that are possible today, this recovery might be closer, and “Dog Days” might soon be over.