The acquired businesses are expected to contribute to Embracer’s net sales in the range of SEK 2,000-3,000 million and to Operational EBIT in the range of SEK 350-550 million during the next financial year, ending March 31, 2023. For the remaining quarters of the current financial year ending March 31, 2022, the run rate contribution is expected to be in the lower end of the above-mentioned ranges. Crazy Labs is the most impactful contributor, both in net sales and Operational EBIT, and is estimated to be completed in the back end of the current quarter ending September 30, 2021.
The aggregated day one purchase price for the Transactions amounts to approximately SEK 2.7 billion in total, on a cash and debt free basis. Approximately SEK 2.1 billion is paid in cash and SEK 0.6 billion is paid in newly issued Embracer B shares. To create long term alignment, a maximum additional consideration amounting to SEK 2.0 billion on an aggregated basis, which is subject to fulfilment of agreed milestones, both operational and financial, over a period of up to eight years has been agreed. The additional consideration comprises of a maximum of approximately SEK 1.0 billion to be paid in cash and approximately SEK 1.0 billion to be paid in Embracer B shares. All shares are issued at a price corresponding to the volume weighted average price per Embracer B share at Nasdaq First North Growth Market during 20 trading days preceding (but not including) the date of signing of each of the Transactions. Thus, the price per share range from SEK 223.20 to SEK 231.93. The aggregated maximum consideration amounts to SEK 4.7 billion. The estimated surplus value that will be in the preliminary PPA amounts to approx. SEK 4.5 billion. This will be amortized according to Embracer's current accounting principles straight over 5 years.
The management teams of acquired companies have ambitious plans for profitable growth in the coming years and the earn outs are constructed to incentivize this. For illustrative purposes, to achieve the maximum additional consideration the acquired companies combined must generate an aggregated Operational EBIT exceeding SEK 6 billion plus achieving certain operational targets by the financial year ending March 2029. To achieve the maximum consideration milestone on year five, the acquired companies combined must exceed SEK 1 billion in Operational EBIT for the financial year ending March 2026 plus achieving certain operational targets.
“I am excited to welcome more than 500 great talents across a wide range of well established businesses that further diversify and strengthen the group across the world from day one. Brick by brick we continue to improve our operating groups and consequently Embracer as a whole. We still have a strong balance sheet with a sizable net cash position to support further M&A going forward. We continue to have many ongoing discussions with entrepreneurs, creators and companies to join the family, including large or transformative companies that would create new operating groups. I’m looking forward to continue growing the Embracer Group both organically and in-organically the decades to come.” says Lars Wingefors, co-founder and Group CEO of Embracer.
Embracer’s operating groups are continuously scouting for companies and development teams that improve the capabilities, the quality and the outlook for each of the operating groups. The Transactions are improving the group’s capabilities within mobile publishing and development, indie development, VR development, as well as story driven, retro shooter and other development for PC/consoles. The IP portfolio is strengthened with titles like Deep Rock Galactic for PC/console and Super Stylist for mobile. The iconic publishing brand 3D Realms will complement the existing publishing brands across the group.
The announced Transactions are aligned with Embracer’s growth strategy and is enabled by the group’s decentralized operating model. Over the past four years, Embracer has expanded from one to eight operating groups. Each of these operating groups have put in place their own M&A agenda with the purpose of adding additional organic growth opportunities and to improve long term profit and cash flow generation. For Embracer’s decentralized operating model to be sustainable and scalable, it is a necessity that most acquisitions are originated and onboarded on the operating group level. For the Embracer operating model with emphasis on decentralized decision making and independence for local management to work, it is also necessary that founders and management of acquired companies join Embracer with a long-term mindset.
Through the Transactions, Embracer grows to more than 8000 employees and contracted employees.
Within free-to-play games, Deca Games combined with CrazyLabs and creates a fast growing, process oriented, data driven organization across the casual and hyper casual segments in mobile market. CrazyLabs brings an experienced and highly scalable publishing organization with access to talented external studios across multiple geographies, a significant size in terms of users and user acquisition spending and IP’s that will complement the existing portfolio of female oriented casual titles within Deca Games and A Thinking Ape. The new Deca operating group and Easybrain will give Embracer a sizable, scalable and cash generative mobile business with a solid outlook for organic growth as well as a platform for acquisitions going forward.
“Crazylabs is exactly the type of company Embracer wants to join forces with. Sagi and team are extremely talented, driven and long term oriented. They have over a decade of success and have proven that they can adapt and succeed in an ever-evolving environment of mobile games. Crazylabs has an exciting growth plan and their publishing capabilities will further strengthen the mobile ecosystem within Embracer“ says Lars Wingefors, co-founder and Group CEO of Embracer Group.
Within premium games, the addition of Ghost Ship as a sister company to Coffee Stain in Denmark and Easy Trigger as a new internal studio in Sweden, will not only bring onboard successful IPs and teams that Coffee Stain has a had a long-term partnership with, but it also marks that Coffee Stain is now an indie operating group with emphasis on continued organic growth as well as M&A. The new Coffee Stain operating group will be home to some of the most talented indie developers on the planet. Hopefully more indie teams will join forces with the Coffee Stain and Ghost Ship over the coming years and create a unique and even stronger indie eco system.
“Being invited into Embracer, one of the most visionary players in the global game market, is a truly fantastic opportunity for us. It feels crazy to think that it's only been five years since we founded Ghost Ship Games, and now we've become part of this big family of very clever game developers and publishers. With the backing of Embracer, we can more boldly create new IPs, continue our ventures in game-studio investments, and expand the Deep Rock Galactic IP to more markets. Merging with Embracer is by no means an exit for us - it's a natural continuation of our journey towards even greater achievements.” says Søren Lundgaard, Co-founder and CEO of Ghost Ship Games.
“We look forward to continuing our partnership with Coffee Stain and further leverage the knowledge and experience within the entire Embracer Group, to accelerate growth within Easy Trigger and continue to make great games” says Tommy Gustafsson, Co-founder and CEO Easy Trigger.
Koch Media owned Vertigo Games is strengthening its development capabilities within VR by acquiring the experienced team at Forcefield. Consequently, Vertigo is more than doubling its internal development capacity to support its ambitious growth agenda within the VR space.
“Today we enter a new phase of growth as part of Vertigo Games, who are not only one of the most successful VR game development studios, but also a leading VR publisher and to be part of the immensely diverse global Koch Media / Embracer Group, allows us to fully leverage our company's potential” says Arthur Houtman, Co-founder and CEO Force Field.
Koch Media is also adding a very experienced indie development team in France, DigiXart, with an strong vision for the future.
“By joining forces with Koch Media and Embracer, we will be able to grow our team and continue to focus on creating innovative and great games. We are truly excited about this partnership and what it holds for the future of DigixArt”, says Anne Laure Fanise, Co-founder DigixArt.
Saber is acquiring Denmark based Slipgate Ironworks, a long term partner to Embracer that is currently working with both Saber and THQ Nordic on different projects. Slipgate brings a strong team with expertise in development, co-development and porting. By deeper collaboration with the Saber network of studios, Slipgate and its associated publishing brand 3D Realms will be primed for profitable growth.
“Slipgate is an exciting independent studio from Denmark fueled by a passion for game development. We have experienced first-hand the hard work and dedication that the studio has, and their talent will benefit the entire Embracer organization. We look forward to working together with them on future titles,” says Andrey Iones, CCO, Co-founder Saber Interactive.
“We’ve established a great foundation at Slipgate, and have worked with Saber on several projects. We quickly found a great synergy and share a common vision for the quality of games we want to deliver. With this acquisition, we’ll be able to expand our activities at both Slipgate and 3D Realms, with a strong and dedicated partner. We couldn’t imagine a better match!”, says Frederik Schreiber, CEO Slipgate Ironworks.
“We have a deep appreciation for 3D Realms’ heritage and look forward to seeing them enter a new era and thrive,” says Andrey Iones, CCO, Co-founder Saber Interactive.
As part of the acquisition, CEO Mike Nielsen will step down and Frederik Schreiber will assume the role of CEO. Mike Nielsen will remain attached as an advisor.
“We are extremely honored to join the Embracer and Saber family. I know that under their guidance, 3D Realms will continue to grow on the path we have set out. I am very proud to have been a part of 3D Realms and I’m happy to pass on the torch to Frederik Schreiber who has run the company and built it to what it is today”, says Mike Nielsen, Co-founder and ex-CEO 3D Realms.
Embracer is also adding capabilities to address adjacent growth opportunities with the acquisition of B2C e-commerce and merchandise company Grimfrost with focus on viking merchandise on a global scale.
“The Grimfrost team are not only passionate and knowledgeable about our history - they are also true entrepreneurs who have taken the company to a market leading position within a niche that is more popular than ever before. The merger opens up for internal collaboration with Viking themed-games within the group. Besides Grimfrost being a leading, growing and profitable business, this will also contribute with deep knowledge of how to build a global e-commerce and merchandise business around one brand. Importantly, with Grimfrost being headquartered in the home of Embracer, Värmland, it adds to our growing Swedish-based group of companies”, says Lars Wingefors, Founder and Group CEO of Embracer Group.
“The heritage and long tradition of knowledge, integrity and service has been our vision with Grimfrost and we are excited to join forces with Embracer to grow our business and community” says Ismo Arvenhav, Co-founder and CEO of Grimfrost.