Embracer Group divests 'core' Saber Interactive assets in deal worth $247 million

Embracer Group has sold a number of key Saber Interactive assets, including studios such as 3D Realms, Slipgate, New World Interactive, in a deal worth $247 million. The news comes around four years after Embracer purchased Saber for up to $525 million.

Instead of jettisoning the business outright, Embracer has sold "selected assets" to Beacon Interactive, which is controlled by Saber Interactive co-founder Matthew Karch.

In a notice to investors, Embracer said those divested assets include 38 ongoing game development projects with a book value of around SEK 2.3 billion ($224.5 million); proprietary engine technology and numerous game tools; all Saber branded studios; and other studios such as Mad Head Games, DIGIC, Fractured Byte, Nimble Giant, and Sandbox Strategies.

Beacon will also acquire all owned or licensed IP and related liabilities held by those subsidiaries. Beacon has agreed to a purchase price of $247 million, which includes earnout liabilities of $44 million.

Through the divestment, Embracer has ceased all operations in Russia and has immediately improved "cash flow" while "reducing capex, net debt and future liabilities."

Implications for 4A Games and Zen Studios

Notably, the deal also includes the option for Beacon to acquire Metro developer 4A Games and Pinball FX maker Zen Studios for an undisclosed fixed price within a certain time frame. Embracer will not lose the rights to the Metro series if Beacon exercises that option.

"Due to commercial reasons the parties have agreed not to disclose full terms. The Board of Embracer is, however, confident that the exercise price stipulated in the option right reflects at least the studios’ market value and is significantly higher than the current net book value (including goodwill) of $81 million (SEK 829 million)," reads a press release.

"In addition to paying the exercise price the Buyer will, if exercising the option right, assume additional earnout liabilities of approximately $31 million (SEK 317 million). Long-term license and publishing rights to all current and future PC/console games in the Metro franchise are held within the Embracer operative group Plaion. These rights will not change regardless of whether the option rights are exercised."

Embracer will be retaining the following studios and companies (subject to those aforementioned option agreements for 4A Games and Zen Studios): 34 Big Things, 4A Games, Aspyr, Beamdog, Demiurge, Shiver, Snapshot, Tripwire, Tuxedo Labs, and Zen Studios.

The Swedish conglomerate's retained pipeline includes 14 games with a book value of SEK 500 million ($48.8 million) and comprises multiple triple-A titles. Discussing the transaction, Embracer CEO and co-founder Lars Wingefors said both companies are in a stronger position to "thrive going forward."

"Embracer is now able to discontinue all operations in Russia, according to a previous board decision, while safeguarding many developer jobs under new independent ownership. At the same time, we keep key companies, valuable IPs and future publishing rights," he added.

"Cash flow is immediately improved, and we remain committed to reducing net debt. The transaction yields additional headroom to amortize debt in accordance with existing bank agreements and will improve financial flexibility. This is the first transaction of the previously mentioned structured processes and marks a small but important step in our journey to transform Embracer into the future for the benefit of all employees, gamers, and shareholders."

Beacon co-founder Matthew Karch said it was time for Embracer and the "core" of Saber Interactive to part ways. "This transaction also safeguards the livelihoods of hundreds of professionals, many of whom I have worked with for over two decades," he said, while noting that he will "continue to remain a large, long-term shareholder of Embracer."

Embracer has confirmed it's looking into a number of divestment opportunities as it seeks to reduce net debt and maximize shareholder growth.

The once free-spending company is executing a far-reaching restructuring program that has so far resulted in 1,400 layoffs, project cancellations, and the death of numerous studios.

Discussing those redundancies, divestments, and closures in February, Wingefors said Embracer's "overruling principle is to always maximize shareholder value in any given situation" and claimed the company's streamlined structure will create a "strong foundation" for the future.