Keywords Studios - Another electrifying M&A deal

Keywords has announced its largest deal of the year so far, the acquisition of High Voltage Software (HVS), a US-based, full-service, work-for-hire, AAA games developer for up to US$50m, payable two-thirds up front, with one-third after 12 months subject to performance conditions. Keywords will make an initial payment of US$33.5m, with US$23.75m in cash. The total consideration represents 5.6x HVS FY21e EBITDA (c US$9m), within Keywords' target range of 5-7x EBITDA. HVS is Keywords' fifth deal of the year, the third in games development and its third US-based deal. We suspect Keywords was attracted by HVS's close relationship with Epic Games, publisher of Fortnite. We have left our FY20 estimates unchanged, but the deal is 8% EPS enhancing based on our revised FY21 estimates.

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