INSIDE INFORMATION:
"I am pleased that we have found a win-win solution for Embracer and the parts of Saber that now will leave us. This transaction puts both companies in a stronger position to thrive going forward. Embracer is now able to discontinue all operations in
“Over the past four years, I have been proud to be part of Embracer’s amazing transformation into one of the leading game companies in the world. As part of the company’s efforts to reorganize for a changed industry and geopolitical challenges, we jointly felt it was the right decision for both Embracer and the core of Saber to part ways. This divestment leaves both parties in much better positions to grow our respective businesses. I will continue to remain a large, long-term shareholder of Embracer and we will remain partners on several ongoing and future projects. This transaction also safeguards the livelihoods of hundreds of professionals, many of whom I have worked with for over two decades,” says
Transaction key components:
- The purchase price of
USD 247 million (SEK 2,527 million [1]) comprises:USD 203 million (SEK 2,077 million ) which is paid with promissory notes to be repaid in cash no later thanDecember 31, 2024 . During a period startingJune 2024 untilSeptember 2024 promissory notes amounting to a total ofUSD 65 million (SEK 665 million ) will be repaid as part-payments and the remainder will be paid in full at maturity. The promissory notes will carry an interest per annum of 10 percent that will start to accrue as ofOctober 1, 2024 up untilDecember 31, 2024 for any amount outstanding under the promissory notes; and- Absorbed earn-out debt obligations in accordance with IFRS of
USD 44 million (SEK 450 million ).
- Furthermore, Embracer will be entitled to an additional consideration of up to
USD 94 million (SEK 962 million ) if the Buyer resells the assets for a higher consideration subject to certain conditions and time periods. - The Buyer also assumes and forgoes notable current and future performance bonuses and other management compensation relating to the Saber Interactive transaction dated
February 2020 . - The Buyer is granted an option right to acquire 4A Games and
Zen Studios for a fixed price within a certain time period. Due to commercial reasons the parties have agreed not to disclose full terms.The Board of Embracer is, however, confident that the exercise price stipulated in the option right reflects at least the studios’ market value and is significantly higher than the current net book value (including goodwill) ofUSD 81 million (SEK 829 million ). In addition to paying the exercise price the Buyer will, if exercising the option right, assume additional earnout liabilities of approximatelyUSD 31 million (SEK 317 million ). Long-term license and publishing rights to all current and future PC/console games in the Metro franchise are held within the Embracer operative group PLAION. These rights will not change regardless of whether the option rights are exercised. During the past 12 months, 4A Games and Zen had net sales ofSEK 191 million , Adjusted EBIT ofSEK 65 million and EBITDAC[2] ofSEK 19 million . - The divested assets include 38 ongoing game development projects, amounting to a book value of around
SEK 2.3 billion . The divested assets also include certain proprietary engine technology and game tools relating to the divested companies. - The retained pipeline includes 14 games to a book value of around
SEK 0.5 billion . The retained projects, including two joint projects with the Buyer, include:- The next
AAA game from 4A Games - An unannounced concept phase
AAA game - A previously announced
AAA game based on a major license - A new
AAA multiplayer shooter based on a controlled IP - A new AA game based on an Asmodee IP
- A new AA game from 34 Big Things based on an owned IP
- Killing Floor 3
- Teardown (ongoing development)
- The full upcoming pipeline and back catalog from
Zen Studios , Aspyr and Tripwire
- The next
Illustrative financials for the period 1 January –
SEK, million | Divested assets | Retained assets | Divested assets % of group | Retained assets % of group | Group total, incl. divested assets |
Net sales[3] | 1,606 | 1,425 | 4% | 3% | 42,687 |
Adjusted EBIT | 47 | 390 | 1% | 6% | 6,552 |
EBITDAC | -1,156 | 214 | -38% | 7% | 3,024 |
Capex | -1,448 | -395 | 19% | 5% | -7,803 |
# internal headcount[4] | 2,950 | 800 | 21% | 6% | 14,140 |
# of projects | 38 | 14 | 22% | 8% | 179 |
Embracer financial impact
- Upon full payment of the promissory notes, Embracer’s net debt is reduced by around
SEK 2.1 billion . Further, at closing, cash earn-out obligations in accordance with non-GAAP are reduced bySEK 0.5 billion .
- Capex will be reduced by around
SEK 1.2 billion , based on the current annualized run-rate and taking into account capex relating to joint projects with the Buyer. Post-transaction, the restructuring program target of an annualized capex run-rate belowSEK 5 billion will be reached. Any additional divestment under the restructuring program would further reduce capex and improve the balance between capex and completed games development. A growth capex is also expected post-transaction and the value of completed games (SEK 3.2 billion on an LTM basis in Q3 FY 23/24) is expected to be notably higher in FY 24/25.
- The transaction is expected to be immediately accretive to free cash flow generation.
- As of
31 December 2023 , goodwill for the divested entities amounted to approximatelySEK 6.3 billion , and intangible assets amounted to approximatelySEK 2.8 billion of which ongoing game development projects amounted to approximatelySEK 2.3 billion . At closing, the transaction is expected to create a non-cash net expense of approximatelySEK 6.0 billion . The net expense ofSEK 6.0bn related to this transaction will be treated as an Item affecting comparability in the upcoming Q4 report. The non-cash net expense amounts to approximately 9 percent of total consolidated equity forEmbracer Group as of31 December 2023 , and the pro forma equity-to-assets ratio amounts to 57 percent compared to 59 percent pre-deal.
- For the divested companies, the majority of the goodwill which has been recognized as part of the purchase price allocation has utilized a weighted average share price of
51.08 SEK .
- The absolute majority of the non-cash net loss relates to the book value of goodwill in Saber Interactive, which is notably influenced by the challenges to realize full goodwill value in this transaction mainly due to geopolitical factors.
- The remaining goodwill of retained companies is approximately
SEK 6.1 billion and relates mainly to Tripwire, Aspyr, 4A Games,Tuxedo Labs and Demiurge.
Transaction evaluation
In a comprehensive process led by Aream & Co, Embracer has evaluated several different options, including divestment and restructuring of Saber Interactive. After interactions with several potential buyers, including receiving offers, the Board of Directors deems the terms of the transaction with the Buyer to be the best option and in the interest of Embracer and its shareholders.
On
Since the offer was made, Saber Interactive has been run operationally by the remaining management, with restrictions relating to
The Board of Directors has appointed independent third-party experts and advisors who, at arm’s-length, have evaluated the offer and the attractiveness for Embracer and its shareholders. Furthermore, and due to the previous related party relation, the Board of Directors has appointed
The transaction in detail
The assets from the operative group Saber Interactive included in the transaction are:
All Saber branded studios | Nimble Giant |
DIGIC | |
Fractured Byte | Sandbox Strategies |
Mad Head Games | Slipgate |
New World Interactive | 3D Realms |
All owned or licensed IP and related liabilities owned or held by the studios and entities listed. | All contractor relationships relating to the studios and entities listed. |
All Russian employees have been transferred to new entities that are wholly owned by local management that work exclusively with the Buyer. Embracer will initiate a liquidation process to dissolve any Russian companies in accordance with Russian legislation.
Embracer will retain the following studios and companies (subject to the option agreements for 4A Games and
34 Big Things ( | Shiver ( |
4A Games ( | Snapshot ( |
Aspyr ( | Tripwire ( |
Beamdog ( | |
Demiurge ( |
The retained companies will be welcomed and integrated into other parts of
Collateral and release of shares under clawback
At closing Embracer has agreed with the Buyer to release 12,798,274 A shares and 27,438,336 B shares in Embracer currently held in escrow with clawback rights for payment of future earnout obligations to
Closing of the transaction
Closing of the transaction will take place as soon as the conditions for the transaction, including customary conditions, are fulfilled.
Investor presentation
Advisors
Aream & Co, are acting as financial M&A adviser.
For more information, please contact:
Tel: + 46 730 24 91 42
Email: oscar.erixon@embracer.com
Tel: +46 704 52 57 63
E-mail: beatrice.forsgren@embracer.com
About
Embracer Group’s shares are publicly listed on Nasdaq Stockholm under the ticker EMBRAC B.
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[1] FX rate as of
[2] EBITDAC = Adjusted EBITDA less Gross investment in intangible and tangible assets.
[3] Net sales include intercompany transactions within Embracer
[4] Internal headcount includes internal game developers, internal employees, and non-development, as of
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