Keyword’s (LON:KWS) acquisition of GameSim for $4.76m marks the company’s long planned entry into engineering. We expect follow-on acquisitions as it replicates its strategy of building a service line through consolidating the fragmented games outsourcer market. As with the company’s Art service line, GameSim’s teams work closely with the core engineering teams of its games developer customers, creating cross-selling opportunities and deeper relationships with customers. Incorporating GameSim, together with the earlier $0.9m acquisition of XLOC, we upgrade FY17e EPS by 3%.
Landing point for building an engineering service line
GameSim is a Florida-based provider of engineering services for the games industry (c 70% of revenues), but also for the defence and geospatial industries. Its range of services for the games industry includes its proprietary technology for creating 3D simulated environments, which is core to its other service lines. The business has some similarities with Keywords’ Art service line in that teams of specialised staff work closely with the clients’ core games developer teams. Hence management sees good scope for cross-selling between engineering and art and for deeper customer relationships at this level. As a reminder, Keywords entered the art segment through the €3.2m acquisition of Lakshya Digital in 2014. Spending a total of €16.5m on Lakshya, Mindwalk and Liquid Development, the company has built this into an estimated €22m run rate service line. Management envisages a similar build-out profile for engineering.
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