Embracer Group - M&A adds 3 new targets to group
Acquires Gearbox, Aspyr, Easybrain Total transaction USD ~2.6bn, ~17x ‘21e EV/EBIT Could add ~23% to consensus 21/22e adj. EPS Embracer snatches up Borderlands developer Embracer announced 3 large acquisitions this morning. 1) Gearbox Software, a very well-known U.S. developer of video games for PC/Console, owning AAA IP’s such as Borderlands, which will become Embracers best known IP in our view.
2) Aspyr Media, a U.S. based video game developer best known for adapting video games for the MacOS platform (like Borderlands). 3) Easybrain, a Cyprus based mobile game developer focusing on casual games within the puzzle genre Upfront price of USD 1.1bn, earn-outs USD 1.5bn Based on our initial estimates, Embracer pay a combined upfront price of USD 1.1bn (~22% cash & ~78% shares), and could pay potential earn-outs of USD 1.5bn (~56% cash & ~44% shares), bringing the total price of the transactions to USD ~2.6bn.
When we extrapolate the historical financials given for each company, adding ~10% growth for ‘21e and slightly improving margins, we could see the acquisitions adding combined sales of USD ~470m and adj. EBIT of USD ~155m. This would imply an upfront ‘21e EV/adj.
EBIT multiple of ~7.1x, and when factoring in all earn-outs, a total ‘21e EV/adj. EBIT multiple of ~17x. Both are accretive to Embracer.
We could see consensus adding ~23% to adj. EPS Based on our initial back-of-the-envelope calculations, we could see the acquisitions adding the following to consensus 21/22e estimates: ~38% to sales, ~40% to adj. EBIT, ~31% to adj EPS (only including the upfront shares), ~23% to adj.
EPS (including all potential earn-out shares). As a closing thought we note that the acquisition of Gearbox will likely be viewed very favorably (snatching up a company that has historically done very well for Take-Two Interactive’s publishing unit). The company is a true AAA-developer, and the Borderlands IP and franchise will become the best known in the Embracer portfolio.