Embracer split: Asmodee starts with debt as an independent company
The Embracer Group plans to split into three independent companies. This will also affect Asmodee. The board game giant will start its new independence with €900 million in debt.
About Asmodee
Asmodee is a global leader in publishing and distributing board games, collectible card games and digital board games. The company owns a portfolio of over 300 brands, including Ticket to Ride, 7 Wonders, Azul, Catan, Dobble, Exploding Kittens and many more. Asmodee operates 23 of its own studios and employs over 2,450 people. The company is headquartered in Paris, France, and distributes its products in over 150 countries. In the 2023/24 financial year, Asmodee generated net sales of 14.8 billion Swedish krona (approximately €1.3 billion) and adjusted earnings before interest and taxes (EBIT) of 1.9 billion Swedish krona (approximately €170 million).
Asmodee was founded in 1995 and has grown strongly since then. Since 2018, Asmodee had been owned by the private equity firm PAI Partners. In 2021, Embracer acquired Asmodee for €2.75 billion.
The Swedish Embracer Group went on a shopping spree in the past: the holding company founded by Lars Wingefors announced a rapid succession of acquisitions, financing rounds and share issues up to 2023. Low interest rates made it easy to take on debt. With this money, Embracer could buy companies. This drove up the share price, which in turn made it easier to access more capital and enabled further investments.
In 2021, Embracer acquired Asmodee from PAI Partners for €2.75 billion [More on this in our article from back then]. After the takeover, Embracer dreamed of building a global gaming ecosystem – both analogue and digital.
Gescheiterte Zwei-Milliarden-Finanzierung
To finance this and other expansions, Embracer needed money. However, in May 2023, a financing deal worth two billion dollars fell through. According to media reports, the potential investor was the Savvy Games Group, backed by a Saudi sovereign wealth fund. Without fresh capital, Embracer had to resort to restructuring. The holding company sold off stakes, sometimes at significant losses. Additionally, Embracer halted projects, closed studios and laid off around 1,400 employees. In spring 2021, the company’s market value was approximately 13.2 billion euros, with a share price of over 12 euros. Following the failed financing, the value dropped to 2.5 billion euros and the share price to 1.8 euros.
Now, Embracer wants to split into three independent, publicly listed companies – Asmodee, Coffee Stain & Friends (CSF) and Middle-earth Enterprises & Friends (MEEF). There will still be cooperation and mutual licensing agreements between the companies, but under market-standard terms. After all, they will then be competitors with their own strategic and financial ambitions.
Embracer split in several steps
The split is to take place in several steps: First, Asmodee is to be listed on the stock exchange within the next twelve months. CSF is to follow in 2025. Embracer shareholders, which will continue to be listed as MEEF, will retain their shares. In addition, they will receive shares in CSF and Asmodee as a dividend. All three companies are to be listed on the Stockholm Nasdaq.
Asmodee is to continue focusing on board games, collectible cards, tabletop and role-playing games. MEEF is to manage top titles and brands, such as the Lord of the Rings universe and Tomb Raider. CSF is to focus on PC, console and mobile games, divided into premium and free-to-play.
According to Embracer, the split is intended to allow the three companies to focus more on their respective markets. Peter Steinlechner questions this argument on golem.de.
Just recently, shareholders were sold the story of the “complete value chain from a single source”. Now that no longer applies. Instead, three largely independent companies are to serve relatively niche markets. […] The split of Embracer Group will at least be an expensive endeavour in the medium term. The legal processes, plus finding new managers and changing structures, will cost millions – money that won’t go into game production.
golem.de
Gameswirtschaft points out another aspect in a rapid analysis.
With the now neatly filleted tranches, the likelihood increases again that Saudi Arabia – currently the second-largest Embracer shareholder – will secure individual choice cuts without having to land the whole fish, as it did a year ago. This interpretation can also be read between the lines of the consumer-friendly, state-owned Saudi Savvy Games Group’s celebratory statement: “We welcome today’s announcement regarding the transformation into three separate entities – and believe that this proposal offers significant benefits for the operational business and shareholders.”
Gameswirtschaft
It is planned that the parent companies of Asmodee, CSG and MEEF will have their headquarters in Karlstad, Sweden. Asmodee’s operational headquarters is to remain in Paris. In preparation for the split, Stéphane Carville, current Asmodee CEO, and Marc Nunes, current COO, will join Asmodee’s board of directors. Thomas Koegler, currently deputy COO, is set to become Asmodee CEO in the coming months.
900 million euros in debt for Asmodee
Asmodee will start as an independent company with a burden: due to the split, debts from the two games units totalling 900 million dollars will be transferred to Asmodee. Here’s how it works: Embracer has taken out a loan of 900 million euros via Asmodee. The term is 18 months, and the conditions have been kept confidential. A large portion of the sum is used to refinance an existing loan of 700 million euros, which is due in February 2025. As a result, Asmodee’s net debt to adjusted EBITDA ratio is around 3.9. This means Asmodee currently needs 3.9 years to pay off the net debt from its EBITDA.
Peer Sylvester warns on spielbar.com of possible consequences.
Asmodee is doing well and, as a reward, gets to pay off Embracer’s debts. And in an amount that is significantly higher than what is economically considered responsible. If Asmodee fails to reduce the mountain of debt – and profits cannot be increased indefinitely, especially in the games sector – then there is a real risk that Asmodee will go bankrupt. Embracer, however, will still have shed its debts, as they are now independent of Asmodee. […] If Asmodee manages the small miracle and frees itself from the imposed financial troubles, then Embracer not only gets rid of its debts but also retains shares in a then healthy company – a win-win. For at least one of them, anyway.
Hanzala Iftikhar also criticises this move on Exputer.
It wasn’t Asmodee’s fault that Embracer made so many ridiculous and stupid decisions. But why is the company being held responsible for everything? If you ask me, this move will cause even more damage than Embracer has already done.
Exputer
Embracer CEO Wingefors naturally sees it differently. He said at the investor press conference on the split that Asmodee is an established company with a long history of success.
“They [Asmodee] have carried up to or even more than 5x leverage under their private ownership from private equity for many years. It’s a well known asset by many leading European banks and obviously they have done their homework on this.”
Lars Wingefors, Gründer, CEO und Großaktionär von Embracer
Wingefors, like the banks, is confident that Asmodee will continue to generate stable cash flows in the future. Whether his confidence is justified, we’ll know in at most 18 months. That’s when the €900 million loan is due.