TIDMDEVO
RNS Number : 0079S
Devolver Digital, Inc.
01 November 2023
1st November 2023
The information contained within this announcement is deemed by
the company to constitute inside information stipulated under the
Market Abuse Regulation (EU) No. 596/2014 as it forms part of the
domestic law of the United Kingdom by virtue of the European Union
(Withdrawal) Act 2018 (as amended) ("UK MAR"). Upon the publication
of this announcement via the Regulatory Information Service, this
inside information is now considered to be in the public
domain.
DEVOLVER DIGITAL, INC
("Devolver", the "Group" or the "Company")
ACQUISITION OF SYSTEM ERA SOFTWORKS, INC
Acquisition of System Era for initial consideration of US$22m
(up to US$40m)
Successful team and excellent strategic and cultural fit
Adds Expandable Games* hit title Astroneer
Devolver Digital, Inc (AIM: DEVO), an award-winning digital
publisher and developer of indie video games, is pleased to
announce that it has acquired System Era Softworks, Inc ("System
Era") (the "Acquisition" or "Transaction") for a total
consideration of up to US$40.0 million to be satisfied by a
combination of cash and shares ("Total Consideration"), of which
US$22.0 million is due as initial consideration.
Established in 2014, System Era is an award-winning,
multi-platform video game developer based in Seattle, United
States, currently employing 50 individuals. System Era is the
developer behind Astroneer, a highly successful, space-exploration
themed, multiplayer sandbox adventure game, of which it owns 100
per cent of the intellectual property. Astroneer is an Expandable
Game* title released in 2016, with a proven history of player
retention and engagement through regular content releases and
updates. To-date Astroneer has generated over $87 million of gross
revenues and has been played by over 13 million people.
Acquisition Highlights
-- The acquisition represents a strategic opportunity for
Devolver to expand outside of its core strength of premium indie
titles, leveraging System Era's knowledge of Expandable Game style
development, as well as its live operations technology and existing
IP.
-- Devolver will capitalise on System Era's development
expertise in creating quality, community-centred, long-life titles,
which it has proven through the success of its debut title
Astroneer, a game that in 2022 achieved its highest annual unit
sales figures
-- The Acquisition adds Astroneer to the Group's current
portfolio of high-quality intellectual property, alongside future
titles System Era develops.
-- System Era's founding team comes from AAA backgrounds, having
held senior positions at Ubisoft and Microsoft, working on
franchises such as Halo, Assassin's Creed and Watch Dogs, and have
instilled a strong team culture that aligns with Devolver
Digital.
-- Total consideration of up to US$40 million is to be satisfied
by US$22 million initial consideration, made up of US$20 million
cash on closing and US$2 million of shares and cash to be issued on
the 12-month anniversary of closing, as well as US$10 million
deferred consideration, and up to US$8 million potential earn out,
both payable in cash and shares. Further detail is provided
below.
-- Under Devolver's accounting policies, based on an estimated
restatement of System Era management's unaudited numbers, System
Era generated revenue of approximately US$7 million, and adjusted
earnings before interest tax depreciation and amortisation
("EBITDA") of approximately US$3.8 million, in the preceding
12-months to 30 June 2023.
-- Under Devolver's accounting policies the Acquisition is
expected to contribute positively to EBITDA in the year ending 31
December 2024, being the first full year of ownership.
Douglas Morin, Chief Executive Officer of Devolver Digital,
said:
" The thing that excites me the most about System Era is the
cultural and strategic fit with Devolver. This is a highly
experienced, talented group of developers who come with a proven
hit, Astroneer, in its eighth year. Their know-how in Expandable
Games development opens up a new player-base and revenue stream for
Devolver. We are looking forward to bringing the fun to new players
in new, innovative ways - and above all welcoming the team to
Devolver in coming days and months."
Brendan Wilson, Chief Executive Officer of System Era, said:
"Devolver and System Era have been mutual admirers for a long
time. We've always seen Devolver's banner as a mark of quality, but
they also represent an approach to developing and publishing games
that is unique in the industry. Their developer-first orientation
lets bold and unorthodox ideas thrive. We're thrilled to be joining
into a confederation of like-minded people where System Era's games
will get the support needed to reach global audiences, and our
developers will continue to work within the culture they love."
* Expandable Games refers to premium games that continue to
engage the community and bring in new players for years after
release through enduring, timeless game design and a regular
cadence of content and feature updates with optional in-game
purchases.
Enquiries:
Devolver ir@devolverdigital.com
Harry Miller, Executive Chairman
Douglas Morin, Chief Executive Officer
Daniel Widdicombe, Chief Financial Officer
Zeus Capital Limited (Nominated Adviser
& Joint Broker)
Nick Cowles, Jamie Peel, Alexander Craig Tel: +44 (0)20 3829
(Investment Banking) 5000
Benjamin Robertson (Equity Capital Markets)
FTI Consulting (Communications Adviser) devolver@fticonsulting.com
Jamie Ricketts / Dwight Burden / Valerija Tel: +44 (0)20 3727
Cymbal / Usama Ali 1000
Fieldfisher LLP and Foley & Lardner LLP are acting as legal
advisers to Devolver on the transaction.
About Devolver - www.devolverdigital.com
Devolver is an award-winning video games publisher in the indie
games space with a balanced portfolio of third-party and own-IP.
Devolver has an emphasis on premium games and has published more
than 100 titles, with more than 30 titles in the pipeline scheduled
for release over the next few years. Devolver has in-house studios
developing first-party IP titles and a complementary publishing
brand. Devolver is registered in Wilmington, Delaware, USA.
FURTHER INFORMATION
Overview of System Era
System Era is a multi-platform game developer based in Seattle,
USA. It was established in 2014, by co-founders Adam Bromell,
Brendan Wilson, Paul Pepera and Jacob Liechty. The business
currently has 50 employees.
System Era is well known as the developer behind Astroneer, a
space exploration themed, multiplayer, sandbox adventure game, of
which it owns 100 per cent of the intellectual property. Astroneer
was designed as an Expandable Game title and has regular content
releases, meaning that major updates are periodically released. The
game is currently available on Steam, PS4, Xbox One, Nintendo
Switch. To date Astroneer has generated over US$87 million of gross
revenues and been played by over 13 million people. System Era has
a strong track record of developing innovative content, driven by a
quality team with significant experience in the live-operations
space.
Rationale for the Acquisition
The Acquisition aligns with Devolver's wider corporate strategy
of gradually expanding into the Expandable Games market. This model
typically refers to games that generate revenues from periodic
update releases and/or in-game purchases. This allows games to be
monetised post-release and aims to engage consumers over a
prolonged period. The Expandable Games model bridges the gap
between the risk of free-to-play games and the large acquisition
cost of non-GaaS premium titles. From a consumer perspective, the
Expandable Games model fills player demand for evolving game play,
resulting in an increase in player retention. As a result, the
acquisition will provide Devolver with the foundations to grow into
an important market, gaining access to increasingly prominent
revenue streams.
Astroneer has continued to perform strongly, in 2022
experiencing its most successful year, in terms of both units sold
and revenue generated . The game is entering its eighth successive
year and is expected to positively contribute to EBITDA going
forwards. Devolver is confident that the team will maintain the
success of Astroneer and provide meaningful future contribution to
the Group through the release of future IP.
There are also potential opportunities for synergistic benefits
from the development of future GaaS-based game titles. System Era
utilise a number of internally built live-operations for services
such as authentication, in-game stores, and user inventories. These
technologies can be leveraged across future Devolver titles,
providing potential cost savings as well as broadening the types of
games Devolver can build with internal or external developer
partners.
Along with the powerful technology already developed by System
Era, Devolver will gain crucial expertise developing, launching,
and running live-operations games, allowing the group to expand
beyond its core offering of premium indie titles. With System Era
becoming part of the Devolver family, the team will be able to
leverage the Group's significant expertise in production, marketing
and publishing, amplifying the success of System Era's current and
future titles.
Additionally, System Era provides Devolver with a significant
presence in Washington, USA, enabling better access to talent and
an ability to support existing and potential new clients.
Terms of the Acquisition
Devolver has agreed to acquire 100 per cent of the issued share
capital of System Era, for an agreed enterprise value of up to US$
40.0 million , subject to customary working capital adjustments and
the earnout provisions summarised below.
The Initial Consideration is US$ 22.0 million on a
cash-free/debt-free basis, subject to typical adjustments for cash,
debt and normalised working capital, and will be satisfied by: (i)
the payment of US$ 20.0 million cash at Completion; and (ii) US$
1.8 million to be satisfied by the issue of 5,750,650 new Devolver
Shares and the payment of US$ 0.2 million payable in cash, which
are due to be issued and paid following the expiration of a
12-month period following Completion (the "Hold Back Period").
Further Contingent Consideration of US$10.0 million to be
satisfied by an aggregate of US$5.6 million in cash and US$4.4
million by way of Devolver Shares, due on release of its next
title.
The Company will pay further Earnout Consideration of up to
US$8.0 million to be satisfied annually (in a combination of cash
and shares at Devolver's discretion) following the acquisition,
subject to the satisfaction of certain periodic performance targets
that are based on Astroneer's EBITDA contribution in the financial
years ending 31(st) December 2023 to 31(st) December 2027.
Total Consideration is on a cash free, debt free basis, subject
to customary working capital adjustments. Devolver shares and cash
held back has been agreed in order to meet any warranty claims
during such period. All shares issued as part of the Total
Consideration will be subject to lock-up arrangements, details of
which are set out below.
Devolver will finance the Transaction through a mixture of
shares and its own cash. The number of Devolver Shares to be issued
following the expiration of the Hold Back Period has been
calculated based upon the Volume Weighted Average Price (VWAP) of
the Exchange Shares as derived from the AIM Appendix to the Daily
Official List of the London Stock Exchange for the thirty
consecutive full trading days (converted each day into USD at the
prevailing spot exchange rate) ending on the third trading day
prior to completion of the Transaction.
Lock-up Arrangements
The new Devolver Shares used to satisfy the Initial
Consideration will be issued at the expiration of the Hold Back
Period and are in any case subject to a 12-month lock-in period
from Completion and thereafter a 6-month orderly market arrangement
on standard UK market terms. New Devolver Shares issued to satisfy
any Earnout Consideration and the Contingent Consideration will be
subject to a 12-month lock-in from issue and a subsequent 6-month
orderly market arrangement, both also on standard UK market
terms.
Financial information of System Era
System Era's year end is 31(st) December. Under Devolver's
accounting policies, based on an estimated restatement of
management's unaudited numbers, for the preceding 12-months ended
30(th) June 2023, System Era generated approximately US$7 million
of revenue and adjusted EBITDA of US$3.8 million.
Post acquisition System Era will adopt Devolver's group
accounting policies, including certain policies under IFRS15,
IFRS16 and IAS38.
System Era has in place a bonus incentive scheme that will
reward management and employees for outperformance in relation to
its next title.
Financial impact of the Acquisition
Under Devolver's accounting policies, the Acquisition is
expected to contribute positively to EBITDA in the year ending 31
December 2024, being the first full year of ownership. System Era
continues to reinvest profits from Astroneer into development of
its future title.
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END
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Devolver Digital (LSE:DEVO)
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