It was a bad day for low-key gaming colossus Embracer Group, which announced in its full-year financial report that a "groundbreaking strategic partnership" worth more than $2 billion had fallen through at the last minute.
Embracer didn't name the other company involved in the planned partnership, but said that a verbal commitment to the deal, which "would have set a new benchmark for the gaming industry," was secured in October 2022.
"The transaction had many of the highest rated global advisories onboard with several hundred people engaged on both sides," Embracer said. "All documentation was finalized and ready to go as of yesterday [May 23].
"The specific deal included more than $2 billion in contracted development revenue over a period of six years. The deal would have enabled a catch-up payment at closing for already capitalized costs for a range of large-budget games, but also notably improved medium-to-long-term profit and cash flow predictability for the duration of the game development projects."
Embracer had requested that the deal be closed before its announcement, presumably so it could end the year with a bang. Instead, less than 24 hours before the release of its year-end results, "we received a negative outcome from the counterparty," Embracer said. In other words, the putative partner pulled the plug.
This is presumably the deal Embracer announced in November 2022 as "a transformative partnership and licensing deal that we have worked on with several industry partners," which was expected to cover "a range of large-budget upcoming games over the coming six years."
Despite the collapse of the deal, Embracer said it will continue to pursue partnerships and collaborations with other companies. But it's a big loss for Embracer, and frustration and upset was plainly visible on the face of CEO Lars Wingefors during today's investors livestream.
"It's been a rough night. Getting that decision when you have everything prepared, presentation, communication, and obviously you've been working day and night for almost half a year to achieve something. But hey, this is business. I know shareholders and other stakeholders, they expect me to win every battle. It was a big one, and we didn't win this one."
The obvious question at this point is, who was Embracer's dance partner? The company has spent the last couple of years on a spending spree, acquiring studios including Crystal Dynamics, Eidos Montreal, Square Enix Montreal; more recently it struck a deal with Warner to make "multiple Lord of the Rings movies," something it can do because in 2022 it also snapped up the rights to adapt JRR Tolkien's books into films, games, and other forms of media. Earlier this month, Amazon announced that it had reached a deal with Embracer to make a new Lord of the Rings MMO. But this deal was for "contracted development revenue," rather than a studio acquisition, and as Embracer said last year, involved multiple external partners.
Predictably, Embracer Group's share price took a sharp tumble after the news was announced: According to FT, it was the biggest one-day percentage drop since the company's listing on the Stockholm exchange in November 2016.
