Embracer Group - Gearbox Entertainment crowns M&A spree

Total transaction cost implies ~16x ‘21e EV/adj. EBIT We raise 21/22e-22/23e adj. EPS by 18. 5-18.

7% Raise fair value to SEK 180-280, ~22x ‘21e EV/adj. EBIT M&A adds 1,180 developers and 22 new IP’s Embracer today announced three sizeable acquisitions: Gearbox Entertainment, Aspyr Media and Easybrain. We are most excited about the acquisition of the US-based PC/console developer & publisher Gearbox, which has a long track record of profitability and adds a true AAA IP in the Borderlands franchise, which the company owns and develops (sold 60 million+ copies).

In our view, this is a new high in terms of M&A quality for Embracer. Aspyr Media adds a developer and publisher with over 25 years of experience, and it has become expert in porting successful games/licenses to new platforms, offering license owners incremental revenues without the development burden. It is worth noting that Aspyr is currently developing a game with a budget of USD 70m (we think this could be the new Star Wars: Knights of the Old Republic).

Lastly, Easybrain boosts Embracer’s entrance into the mobile segment. We raise adj. EPS for 21/22e-22/23e by 18.

5-18. 7% Following the inclusion of the announced acquisitions, which are estimated to close over the coming months, we increase our top-line estimates for 21/22-22/23 by 35. 8-35.

9%, adj. EBIT by 37. 3-38.

9%, and adj. EPS by 18. 5-18.

7%. The adj. EPS contribution is based on the new number of outstanding shares (which includes shares issued as part of potential earn-outs).

We note that reported figures will be diluted by what we think will be a significant increase in goodwill amortisation. As the M&A presentations did not offer any flavour on the balance sheet effect of the acquisitions, we hope to gain additional insight in conjunction with the Q3’20/21e report, when we will provide a more in-depth note. Fair value range up to SEK 180-280 (161-238) per share Following our estimate changes, we raise our SOTP fair value range to SEK 180-.