Keywords Studios' (LON:KWS) acquisition of Studio Gobo and Electric Square (NYSE:SQ) for up to £26m meaningfully strengthens the company’s engineering service line, while enhancing our FY19 earnings by 6% based on conservative assumptions. In paying a maximum of 7.6x historic EBITDA for the business, the company looks to be buying a good asset in a high value-add service line at a very reasonable multiple.
Strengthening the engineering service line
Studio Gobo and Electric Square are two Brighton, UK-based games engineering studios co-founded and led by games industry veteran, Tony Beckwith. Studio Gobo has a core strength in high-end console games development, providing full development (entire games, a new capability for Keywords) or co-development (parts of games) for a range of tier one clients including Ubisoft (For Honor), Microsoft (NASDAQ:MSFT) (Miami Street) and Disney Infinity (Marvel Super Heroes, Guardians of the Galaxy). Electric Square has core strengths in live ops development (developing new features and downloadable content to keep gamers engaged) and free-to-play and racing games. The addition of the 170 Brighton-based engineers in the combined group (Gobo) brings Keywords’ engineering team to 610 people. While the business does have some risk from Brexit and a relatively high customer concentration, the acquisition by Keywords will help mitigate these.
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