This article is based on our Weekly News Digest #50 from 18.12.2023. 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.
Today, leading game development outsourcing company Keywords Studios (LON: KWS) has acquired UK-based outsource games developer The Multiplayer Group (MPG) from Improbable for $97.1m (£76.5m). The deal implies the multiples of around 5x-7x forward EV/EBITDA 24.
Since its foundation in 2018, The Multiplayer Group has participated in the development of more than 20 AAA online titles and worked with studios such as Activision Blizzard, Bethesda, Zenimax, Epic, and 2K. For instance, MPG has worked on such titles as Fallout 76, Mortal Kombat 1, Starfield, Fall Guys Ultimate Knockout, and other multiplayer games. The studio helps developers design and engineer multiplayer gameplay, client/server models, animations, and character control.
MPG was acquired by Improbable in Sep’19. The companies have always had similar expertise and shared focus. Improbable is primarily known for its SpatialOS Game Developer Kit, a set of tools for creating online games, especially MMO ones. Project Morpheus is another gaming software for creating massive online games and simulations. In 2022, the company announced the M² network, a development toolkit for creating web3 metaverses that support thousands of participants in real-time. History shows that Improbable and MPG complement each other and greatly benefit from working together.
Back then, we didn’t know the sum of the deal, but it seems to be ~$30m since Improbable managed to “more than double” the valuation of MPG. So, the sale of MPG is said to be a part of a growth strategy built around M&As. Improbable bought the company with the familiar business model, knowing how to scale and develop it over time. After the company grew enough and the right buyer was found, the companies split up, leaving Improbable with new funds on balance after the exit.
Speaking of the right buyers. Keywords Studios is the first to come to mind when acquiring an outsourcing company. Well-known entertainment-focused advisor Aream & Co acted as financial adviser to Improbable.
From 2020 to 2022, Keywords acquired 17 studios, which is why it often ended up in our reports as one of the most active strategic investors on the market. Speaking of this year, the company acquired three other companies apart from MPG: Digital Media Management for $67.5m, Fortyseven Communications, and Hardsuit Labs, both for undisclosed sums.
Though we see the continued growth of Revenue, we also observe a stagnated EBITDA and Net Cash shifting to a Net Debt of $12.4m during the last twelve months — the latter was strongly affected by the $100m the company spent earlier for the abovementioned acquisition activity.
Source: Keywords Studios
Nevertheless, in Jul’23, the company secured a multicurrency revolving credit facility agreement (RCF) of $400m from several lenders to support its sustainability and growth. This facility and the cash were used to support the acquisition of MPG. This acquisition is meant to help the company solve not only its current issues with financials but also with the share price, which was drastically affected by the company’s difficulties and the overall market situation.
To summarize, let’s have a quick look at some of the key facts about the deal:
— This is the largest deal with an announced value by Keywords;
— Keywords expects the deal to be earnings per share accretive in its first full year post-acquisition;
— In 2024, MPG is expected to contribute a double-digit Revenue growth to Keywords.
The stakes are significant, and the forecasts are optimistic, likely because of all the opportunities the deal opens to MPG. With one of the largest client bases in the industry and various stacks, tools, and technologies on board, Keywords has all it takes to support the already growing outsourcing business. So let’s keep an eye on the companies and see if these plans are meant to come true.
