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Europe’s biggest dealmaker is a Swedish gaming company you’ve never heard of

July 6, 2021, 10:00 AM UTC

A relatively unknown Swedish company has become Europe’s most valuable video-game developer after the region’s most prolific deal spree.

Embracer Group AB announced 27 takeovers over the past 12 months, according to data compiled by Bloomberg. Its pace of acquisitions surpassed U.K. business services provider Marlowe Plc, which announced 12 purchases during the period, and Swedish investment firm Lifco AB, which sealed 16 transactions.

Embracer founder Lars Wingefors, 44, started out as a teenager selling comics by mail-order before branching into video games. His company’s shares have risen more than 30-fold since a 2016 initial public offering, overtaking French rival Ubisoft Entertainment SA this year to reach a market value of $13 billion.

The M&A drive has also increased the value of his stake in Embracer — 28.4% as of March 31 — from $1.4 billion a year ago to $2.4 billion today, according to data compiled by Bloomberg.

Although many of Embracer’s acquisitions have been small, they have been steadily increasing in size. In February it bought Gearbox Software LLC, the developer of Borderlands, in a deal worth up to $1.3 billion. It now oversees 69 development studios and more than 200 game projects.

Wingefors’ approach is in stark contrast to rival Supercell Oy, the Finnish developer behind Brawl Stars and Clash of Clans, which has relied on a relatively small stable of highly popular games.

Supercell saw sales fall in 2020 despite an increase in consumers playing mobile games, while Embracer beat estimates in its recent quarterly earnings.

However, Embracer’s rapid expansion poses potential risks. The company now has 30 people at the group level overseeing eight subsidiaries with a combined 7,000 employees. In 2016, it had just 374 employees.

“The big risk for inorganic growth stories in the games industry has always been what happens when they run out of targets — can they grow organically?” said Matthew Kanterman, a technology analyst at Bloomberg Intelligence. “I don’t think we’re at that point yet with Embracer but it’s something to consider down the road.”

Embracer didn’t release a single so-called “AAA” game last year. Its success is built on a steady flow of mostly second-tier titles that get decent followings, often refining older games to make sequels or taking an asset from one studio and repackaging it at another. Its Titan Quest got a No. 1 rank on Steam after studio THQ Nordic gave it a new patch a decade after its initial release.

There have also been some recent successes. Viking legend-inspired survival sandbox game Valheim, released in February, racked up sales of almost 7 million copies in the quarter through March.

“Many people think that there are no synergies between our companies,” said Chairman Kicki Wallje-Lund. “But we think that there are more synergies than maybe anywhere else, because we have a lot of resources internally. We can offer the studios help with, for example, marketing, distribution, publishing.”

The company now wants to grow beyond its domestic market, and is evaluating a move to list on a major market such as Nasdaq Stockholm, with a possible dual listing elsewhere.

Moving to the main index will give it access to a bigger pool of capital, said Wallje-Lund.

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