Embracer: New M&A spree - ABG

Acquisition of CrazyLabs and Ghost Ship Games stand out
Embracer announced a total of 8 new acquisitions this morning, which add another 500 developers to the group, mainly within the mobile gaming segment through Israeli hyper-casual publisher CrazyLabs, which is the most sizeable acquisition today with Jul’20-Jun’21 revenues of USD 153m (expected to close during current quarter). CrazyLabs will join the Deca Games segment. We would also highlight the acquisition of Ghost Ship Games, which will join the Coffee Stain segment. Ghost Ship Games has developed Deep Rock Galactic which was released in 2020 to very strong reviews (~85 Metacritic) with several million copies sold across PC/Xbox. Ghost Ship Games had a very favorable publishing agreement with Coffee Stain for Deep Rock Galactic, receiving a healthy majority of revenues, all of which will now stay in the Embracer family following the acquisition.

We could see consensus raising 22/23e adj. EPS by 5-8%
The total transaction consists of an upfront payment of SEK 2.1bn in cash and SEK 0.6bn in newly issued b-shares. There is also an earn-out component over the coming 8-years, which can amount to SEK 1bn in cash and SEK 1bn in newly issued b-shares. As such, the total transaction amounts to SEK 4.7bn (66% cash). Embracer estimates that the acquisitions can add SEK 2-3bn in sales and SEK 350-550m in adj. EBIT during the next FY (ending March 2023). Thus, the total transaction multiples amount to 2.3-1.5x EV/sales and 13.4x-8.5x EV/adj. EBIT. When accounting for the dilution of all possible earn-out shares, we could see FactSet consensus adding 5-8% to the current 22/23e adj. EPS estimates.

Large M&A headroom remains even after today
Before today we estimated Embracer’s M&A headroom to SEK +30bn (cash+shares) and given the size of the acquisitions today a very healthy M&A headroom remains. Management reiterates that there are ongoing discussions with large targets that could add a new segment to the group and we would not be surprised to see more M&A during H2’21.

Länk till analysen i sin helhet: https://www.introduce.se/foretag/embracer-group/Equity-research/2021/8/embracer-group---new-ma-spree-announced-by-embracer/