Keywords Studios acquires US development company in $13.3m deal

Dublin headquartered video games specialist Keywords Studios has agreed a deal worth up to $13.3 million to buy US-based games development services company Heavy Iron Studios.

The company made the announcement as it said revenue and profit rose in the six months to June 30th.

The conditional agreement will see Keywords expand its West Coast presence

LA-based Heavy Iron provides full game development, co-development, live operations and porting services for the video games industry.

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Among its recent projects are Marvel's Avengers with Crystal Dynamics and the Call of Duty franchise with Activision. In the year ended May 31st, 2020, Heavy Iron generated $5.4 million in revenue and adjusted earnings before interest, taxation, depreciation and amortisation (ebitda) of $1 million.

Under the deal, Keywords will pay initial consideration of $4 million in cash and the equivalent of $500,000 in new ordinary shares to the seller on the first anniversary of the acquisition. The remaining $8.8 million will be payable in a mix of cash and shares based on meeting certain performance targets in the two years after the deal is complete.

"By bringing a new base on the West Coast, it will provide access to many of the world's leading game companies and the local talent pool from where we can expand our activities in the region and build upon our existing presence in Audio and Localisation," said Keywords chief executive Andrew Day.

“This marks our third acquisition since our recent placing, and we have a healthy pipeline of acquisition opportunities which we are actively reviewing and advancing.”

The company completed the acquisition of Unreal Engine specialist Coconut Lizard in June, and acquired Maverick Media in August, adding scale and a sixth studio to its marketing services business.

Announcing its results for the first half of 2020, Keywords said revenue rose 13.3 per cent to €173.5 million with pretax profit up 66 per cent to €11.1 million. Ebidta was €30.8 million, up 19 per cent compared with the first half of 2019.

Revenue was held back by the Covid-19 outbreak, the company said, but demand for most of its services remained strong throughout the six-month period. Testing and audio was hit by supply side constraints, while localisation suffered from postponements on the demand side.

Organic revenue growth of 8 per cent was supported by growth across all service lines, apart from localisation, Keywords said.

The company said trading in the second half had started well with continued growth across all service lines, despite issues caused by Covid-19. Revenue growth is expected to continue, and the board said it was committed to resuming dividend policy in 2021.

“The growth drivers across our underlying video games market remain intact and we anticipate continued strong demand across all our service lines, including some pent-up demand from our clients as our operating environment continues to normalise,” Mr Day said.

“As governments around the world ease support measures for the unemployed or furloughed workers, we expect to be better able to recruit at the entry level positions that fuel growth in our testing and player support businesses. We believe Keywords will be seen as an even more attractive employer, with a hybrid model of remote and socially distanced, in-studio working in a thriving interactive entertainment sector.”