Shares in racing game developer Codemasters (CDM:AIM)  jumped on Friday after the company announced the acquisition of Slightly Mad Studios (SMS).

SMS is an award-winning video game developer renowned for racing franchises, such as critically acclaimed Project CARS and Need for Speed.


Founded in 2009 by Ian Bell, the deal will add more than 150 product development experts with strong experience in creating racing games that fans love. Bell will also bring his vast gaming business nous to the company by becoming an executive director of Codemasters.

SMS is already scheduled to release two new games by March 2021, including Project CARS GO, with two further releases in the pipeline by 2023.

But perhaps more exciting is news that SMS has plans for a racing game based on an as yet unnamed Hollywood movie franchise. This is also expected to launch before the end of March 2021.

Shares in Codemasters shot up nearly 11% in early trading to 232.5p.


The acquisition of SMS will see Codemasters pay up to $196m, or about £152.2m, with the company raising approximately £20m today from investors via new placing shares priced at 210p, a nil discount fund raise to yesterday's 210p closing price.

The company will pay an initial cash component of $25m (£19.4m), satisfied by the share placing, plus $5m in just shy of 1.8m new Codemasters shares.

Presuming the film-based game is launched as planned next year, an extra $5m will be paid out in Codemasters shares.

Finally, there is also an earn-out arrangement which will see SMS owners receive up to $166m (£128.9m approximately) based on hitting earnings milestones over the next one to three years. These incentives will be satisfied through a mixture of cash (75%) and Codemasters shares (25%).


Analysts at Liberum are forecasting that SMS will contribute £10m of earnings before interest, tax, depreciation and amortisation in the next financial year, yet the scale of the performance incentives suggests that both Codemasters and the SMS team have much bigger performance ambitions.

For the year ended 31 December 2018 SMS reported revenues of £7.3m and a loss before tax of £5.2m.

The company said that it expects a 30% increase in earnings per share (EPS) in the first full-year of ownership. According to Shore Capital analysts this would increase EPS to 19.4p and reduce the price earnings ratio to 11-times.

Shore Capital reckons the deal is a good quality fit for Codemasters and one that has the potential to increase both operational and financial opportunities. The enlarged group will have greater scale, plus more diversified and predictable revenues.

Today’s acquisition comes swiftly after the news on 31 October that Codemasters had extended its licensing agreement with Formula 1 through to 2025.


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Issue Date: 29 Nov 2019