Acquires Dutch VR-gaming studio Vertigo Games

Incl. all earn-outs, price ~7.3x ‘21e EV/Adj. EBIT

Consensus to add ~6% to Adj. EBIT

Acquires well-established studio with track-record
Today Embracer Group announced the acquisition of Dutch VR_gaming studio Vertigo Games. The studio was established in 2008 in Rotterdam, and currently employs ~50% workers. The Studio has a proven track-record within VR-gaming, having released the very successful Arizona Sunshine, the 4th most sold VR game during the last 2 years, selling more than 1mn copies according to Embracer. We look with favor on this acquisition, through which Embracer positions itself within the burgeoning VR-gaming space. The ecosystem of the VR-space is currently under construction, to a large part by Valve. Valve chose to release its first iteration of a new Half-life game (Half-life Alyx), in over a decade, as a VR-exclusive game. We think Valve will continue working to make Steam the go-to platform for VR-games, and promote the VR-ecosystem as a whole.

Total consideration corresponds to SEK ~1.1bn
Including all earn-outs over the next 10 years, which assume that Vertigo reaches strong growth financially and releases certain titles, amongst other criteria, Embracer pay’s approximately SEK 1.1bn for Vertigo Games. Approximately ~60% in cash and ~40% in newly issued shares. Based on Embracer’s 2021/22 financial forecast for Vertigo, this corresponds to target price multiples of ~5.3x EV/sales and ~7.3x EV/Adj. EBIT.

We can see consensus raising ‘21e Adj. EBIT by ~6%
Embracer forecasts that Vertigo will generate a topline of SEK 180-240m and Adj. EBIT of SEK 110-170m, for the 2021/22e FY (April 2021 – March 2022). As such, we can see this acquisition adding ~2% to sales, ~6% to Adj. EBIT, ~5% to Adj. EPS, to consensus estimates.

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