Embracer, the Swedish studio driving market consolidation

The group, which was founded just two years as a holding company, has just acquired a fraction of the Japanese Square Enix catalog for a pittance.

How much is Lara Croft worth? The Swedish group Embracer gave a rather surprising answer to this question, by buying off the western licenses from the Japanese publisher Square Enix on Monday: 300 million dollars. A small thing, considering the licenses in pocket – Deus Ex, Thief, Legacy of Kain and thus, tomb Raider – but also the 1,100 employees involved, in three studios (Crystal Dynamics, Eidos Montreal, Square Enix Montreal and eight markets.

Square Enix’s low valuation stems from the Japanese studio’s strategic reorientation, determined to return to its native market after mixed results in Europe and the United States. He also wants to invest in new asset classes, such as the cloud or blockchains, which required a cash injection.

But this operation, in a market where recent operations are thankfully more than ten billion (Microsoft awaits confirmation of the $70 billion acquisition of Activision), also underscores the appetite of the new Swedish ogre.

Change of identity and brutal acceleration

After the integration of Square Enix, Embracer will have 14,000 employees, up from 5,700 at the end of 2020. During the same period, the number of operating groups of the holding increased from 6 to 10, excluding mergers and mergers between the various acquired entities.

The sign of an acceleration that started in the early 2010s: then called Nordic Games, the company founded by the serial Entrepreneur Lars Wingefors (he started selling used comics at the age of 13) undertakes to buy the Austrian publishing house JoWood Entertainment and establishes a subsidiary in Vienna.

In 2013, it proceeded in the same way with the acquisition of the American THQ, which became a subsidiary of the Nordic Games group, renamed THQ Nordic. After multiple operations and a public listing on Nasdaq First North, the group clarifies its situation and in 2019 separates THQ Nordic – a studio – from the holding company called Embracer.

Since then, the purchases have changed in size: after 7 average acquisitions in 2020, the Frisco group is joining Gearbox Entertainment (developer of border areasand Duke Nukem) for $1.3 billion, in February 2021; in the mobile market with the Easybrain studio ($640 million); to the historic Texan group Aspyr, specialist in portages (for $450 million).

Again this year, ahead of Square Enix, which will bolster Embracer’s ability to develop so-called “triple AAA” games — understandably, on a big budget and at the cutting edge of existing technologies — the Swedish neo-conglomerate has committed $3 billion. afford a French champion, board game maker Asmodée (CataniadobbleTrail adventurersjungle speed

strong kidneys

Given the significant financial hardship the group is attributing to itself, there is no reason to think it will stop there. In its latest annual report, published in the middle of last year, Embracer recalled its growth model based on a dual strategy. Organic growth and a policy of diversified acquisitions: licenses, promising studios and publishers (responsible for publication and distribution). Or a confirmed presence throughout the value chain.

The deal with Square Enix will be funded by cash flow generated from previous acquisitions, the group also emphasized. Indeed, the growth is fully fueled by the purchases made: at the end of 2021, sales had increased by 135% in one year to $513 million in a quarter.

In addition, its dynamics are positive in the markets, with its share constantly rising since 2017 and a major spike during the covid (the share had multiplied its value by 13 between 2017 and 2021). Embracer has raised funds through bond issues on several occasions, pocketing $580 million in October 2020 and $770 million in March 2021. Enough to finance most of its growth.

Ongoing Consolidation

Embracer is going fast, because the video game market is in full reshuffling. The global market is dominated by giants Tencent, Sony and Microsoft, but consolidation awaits smaller players.

The latter just won Activision-Blizzard (duty) for about $70 billion. On the editorial side, the owner of Grand Theft Auto, Take-Two, took it on Zynga, mobile giant, in January for $12.7 billion. Two transactions surpassing or approaching the previous record (acquisition of Activision, already by Vivendi), for an amount of 18.9 billion …. in 2007.

The console games majors are trying to get closer to the mobile world to capture the different user panels and complementary business model of traditional games – long-term advertising allowance or pay to win instead of fee-for-service, when purchasing the game.

In the sector, booming during the lockdown, investment funds are also still creeping around: last week, the rumor of strong KKR and Blackstone interest in Ubisoft caused the French stock market to explode.

But the main trend remains smaller purchases from publishers and studios. According to a report by Digital Development Management (DDM), a video game expert, the number of acquisitions in the sector exceeded $38.5 billion in 2021, a 192% increase from 2020.

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