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.
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.
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.
