Keywords St (LON:KWS) $6m acquisition of Red Hot CG further strengthens the company’s position in the art service line, in China and with electronic arts. Management estimates that the deal will make Keywords the number one supplier of art production services to the games industry globally and increase art production capacity by 25%. The deal further enhances our estimated FY18 earnings by 6%, with the three acquisitions made so far in May enhancing earnings by 11% versus our April forecasts.
Bolstering position in art services and China
Red Hot CG is a China-based but UK-managed provider of a range of art services to the games industry. The company’s operating hub is in Shanghai but it has subsidiaries in lower-cost locations elsewhere in China and in Yogyakarta in Indonesia. The addition of Red Hot CG’s 220 artists should increase the group’s art capacity by circa 25%. Management estimates this will make Keywords the largest provider of art production to the global games industry, ahead of Shanghai-based Virtuos, although there remains plenty of scope for further consolidation. From a customer perspective, Red Hot provides services to broad range of developers but has a particularly strong relationship with Activision and will support Keywords’ drive to develop larger-scale, more strategic relationships with major games developers.
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