Embracer Group to transform into three separate companies – Asmodee Group, Coffee Stain & Friends, and Middle-earth

Background and Strategic Rationale

Since its inception, Embracer Group has grown into a global group of creative and entrepreneurial businesses in PC, console, mobile and other related media. This has been possible through the Group’s decentralized operating model, where great entrepreneurs run operations as part of 11 operative groups—each with their own distinctive heritage, intellectual properties, branding, business strategy, and operations. Embracer Group’s strategy has been built around backing entrepreneurs and creators within gaming and entertainment with the ambition to achieve soft synergies from its expanded eco-system. The Group has an extensive catalog of over 9003 fully owned or controlled franchises, including some of the most popular and iconic titles in gaming, comics, and other media. The current structure and model have served the Group well and have been of paramount importance in building a global group with operations in more than 40 countries.

During the past years, the Group has made significant investments in acquisitions and into a strategy of accelerated organic growth. To further realize the untapped potential in Embracer Group and better optimize the use of its resources, Embracer Group announced a restructuring program in June 2023 divided into different phases lasting until March 2024. Focus of the program has been cost savings, capital allocation, efficiency and consolidation, while also divesting selected studios.

Following a careful and thorough review, it is the assessment of the Board of Directors that the current Group structure does not create optimal conditions for future value creation both for Embracer Group’s shareholders and other stakeholders. To continue the transformation of Embracer Group into the future for the benefit of all employees, gamers and shareholders, the Board of Directors and the executive management have therefore decided to propose a separation of Embracer Group, creating three separate publicly listed entities: Asmodee, Coffee Stain & Friends, and Middle-earth Enterprises & Friends.

The Board of Directors have concluded the following:

• The entities will have sufficient scale, coupled with clearer operational strategies and financial profiles that enable simplified equity stories to attract a larger pool of investors. Current shareholders can freely decide on their capital allocation between the three entities.
• Each entity will be able to fully utilize its own balance sheet, its own set of financial targets and optimal financing structure and capital allocation strategy that enable their growth ambitions.
• The new structure enables the best possible greenlighting models, portfolios and go-to-market strategies for indie games as well as AAA games through two separate, more focused entities.
• Ongoing and future collaboration around intellectual properties, companies and people will still be enabled and encouraged across the entities on market terms.

Asmodee Group

Asmodee is a leading international publisher and distributor of board games, trading cards and digital board games with 23 fully owned studios and 300-plus intellectual properties and constitutes the Tabletop Games operating segment of Embracer Group. As per LTM December 2023, Asmodee generated net sales of SEK 14.8 billion, with Adjusted EBITDA of approximately SEK 2.3 billion, EBITDAC of approximately SEK 2.0 billion, Adjusted EBIT of approximately SEK 1.9 billion and free cash flow after working capital of approximately SEK 2.1 billion.

After fiscal year 2024 / 2025, Asmodee has an ambition to grow organically in line with the market, which translates into a mid-single digit organic growth in addition to any acquisitive growth. Asmodee’s ambition is also to expand its margins from current levels as a result of an improved revenue mix and continued cost management while maintaining a high cash conversion.

The spinoff of Asmodee with a listing on Nasdaq Stockholm is expected to have value-enhancing benefits through greater focus on its core strategy, portfolio and markets. The ongoing transmedia collaboration around Middle-earth and many other intellectual properties is expected to continue after the completion of the spinoff. As a global leader in board and trading card games, with a proven track-record of profitable growth, Asmodee is well-positioned to build on its strategy and continue to prosper as a standalone entity. The spinoff is also expected to enable Asmodee to quicker resume its value accretive M&A strategy.

23 in-house studios develop tabletop games for all types of players across social, tabletop, and lifestyle, including a steady addition of new content to key brands. The catalog of 300-plus owned intellectual properties include the beloved board games Ticket to Ride, 7 Wonders, Azul, CATAN, Dobble, Exploding Kittens, and an extensive number of distributed games and intellectual properties. Asmodee is also developing a wide range of licensed tabletop games based on The Lord of the Rings, Marvel, Game of Thrones, Netflix, LEGO, and Star Wars, including the recent successful trading card game release of Star Wars: Unlimited.

Coffee Stain & Friends

Coffee Stain & Friends is intended to consist of leading publishers and developers focused on a variety of games for PC, console, and mobile, including community-driven free-to-play games, LiveOps games, and indie / AA games.

As a standalone company, Coffee Stain & Friends will be able to better showcase its high margin profile and strong cash flow profile coupled with an enhanced ability to resume and allocate resources towards opportunities to maximize the long-term value creation.

The entity will operate under two distinct segments: premium and free-to-play. Premium PC and console operations will include among other Coffee Stain, Ghost Ship, Tarsier, and Tuxedo Labs, as well as THQ Nordic and Amplifier Game Invest. Intellectual properties include Deep Rock Galactic, Goat Simulator, Satisfactory, Wreckfest, Teardown, and Valheim, as well as more than 200 other intellectual properties. Free-to-play operations will include Easybrain, Deca, CrazyLabs, and Cryptic. Intellectual properties include Sudoku.com, Blockudoku, Jigsaw Puzzle, and many other intellectual properties. Key published free-to-play games based on licensed intellectual properties include Star Trek Online and D&D Neverwinter Online.

Middle-earth Enterprises & Friends

Middle-earth Enterprises & Friends is intended to remain a creative powerhouse in AAA game development and publishing for PC and console, and the stewards of The Lord of the Rings and Tomb Raider intellectual properties.

As a standalone company, Middle-earth Enterprises & Friends will operate as a more transparent entity, offering a better structure to maximize the potential of its highly strategic franchises, with focus on the Lord of the Rings and a number of other key intellectual properties. Decision-makers will be closer to the organization, leading to enhanced capital expenditure management, accountability, and well-balanced investments to optimize financial performance and profitable growth over the long term.

Middle-earth Enterprises & Friends will be the home of critically acclaimed studios, including Crystal Dynamics, Dambuster Studios, Eidos-Montreal, Flying Wild Hog Studios, Tripwire, Vertigo Games, Warhorse Studios, and 4A Games among many others. intellectual properties includes Dead Island, Killing Floor, Kingdom Come: Deliverance, The Lord of the Rings, Metro, and Tomb Raider, among many others. The group will include PLAION, Freemode, Dark Horse, and other businesses.

Illustrative Pro Forma Financials by Entity and on Group Level

LTM as per Q3 Fiscal Year 2023 / 2024 (January 1, 2023 to December 31, 2023)