Video games services provider Keywords Studios (KWS:AIM) has continued its buy-and-build strategy, announcing the acquisition of Studio Gobo and Electric Square on Monday.
The deal, worth up to £26m, is Keywords' latest move designed to strengthen its position in the game production supply line.
Gobo is an outsourced developer, taking on projects on behalf of title owners. Ubisoft’s For Honor franchise is a good example. It also develops new features for existing titles and provides technical skills so that games can be played across various platforms.
Investors like the deal judging by the near 5% rally in Keywords' share price, to £18.54.
DEALS KEEP ON COMING
Last month Keywords moved into gaming analytics with the acquisition of Yokozuna Data for $1.6m. That agreement came hot on the heels of its purchase of engineering and co-development company Snowed In for CAD$2.4m.
The company acquired 11 businesses last year and had struck a further seven in 2018, and that was before today's announcement.
Andrew Day, chief executive of Keywords, says Monday’s deal along with others this year will allow the company to have ‘greater visibility of games in the pipeline, at the outset of their development’.
As the company has 23 of the top 25 games producers as clients, Day has previously told Shares that’s he’s more focused on having existing clients use more of the company’s services.
As Keywords develops its product lines Day’s aim may well come to fruition. From starting life as a single service line business, the company now offers seven lines and has an addressable market of £8bn (according to Day).
ANALYSTS SUPPORTIVE
Investment bank Berenberg sees this deal as being immediately earnings enhancing and says it should drive market forecasts for Keywords’ earnings per share up 4% for this year to around €0.50.
Broker Numis also predicts a boost to earnings along the same lines as Berenberg but adds that it views Gobo as a peer to Sumo (SUMO:AIM). Shares looked at both companies in details as part of our recent gaming feature.
Patrick O’Donnell, analyst at Goodbody Stockbrokers, says ‘we expect Keywords to add €60m per annum in deal flow as they further build their presence and become strategically relevant to the top 25 global video game developers’.
This latest deal is the eight transaction of the year and brings its 2018 spend to €53m so looks on target to meet Goodbody’s forecasts.
Keywords trades on 41.4-times the 2018 forecast of €0.50 (approximately 44.8p) earnings anticipated by Numis.
