Borderlands Studio Gearbox Acquired By Embracer Group For Up To $1.3 Billion, 2K Remains On Board

Veteran American studio Gearbox Software has been acquired by the Swedish company Embracer Group in a sale valued at up to $1.3 billion.

As part of the buyout, Gearbox is getting the money, or "rocket fuel," as the company said, to "fuel Gearbox's powerful creative engine." Despite the buyout, 2K Games will continue to publish the Borderlands series.

"As the proud publisher of the Borderlands franchise, we are happy for our partners at Gearbox and this exciting new chapter for their organization," a spokesperson for 2K said. "The merger does not change 2K’s relationship with Gearbox nor our role as the publisher for the Borderlands IP or any other projects we are currently working on with the studio. We look forward to continuing our long-term partnership with this incredibly talented team and delivering many more exciting entertainment experiences to gaming fans around the world."

With the acquisition, Embracer only grows further. The company already has a catalog of more than 200 franchises and 5,500 employees globally across six studios. Gearbox's 550 developers across its Texas and Quebec City offices will become employees of Embracer going forward. Gearbox is Embracer's seventh internal game developer/publisher. Alongside Borderlands, it's also known for the Brothers in Arms series, which has been dormant at the studio--at least publicly--while ideas are worked on internally.

Gearbox founder and top executive Randy Pitchford is staying on with Gearbox as part of the sale. "The feeling at Gearbox is that we are just getting started and this transaction is not merely a stimulant for the talent of our employee-owned company, but a propellent for the exciting future we have planned," he said in a statement.

In the future, Gearbox said it will plan to grow the size of its two studios, create new ones, and build on its partnerships to drive future growth. "This merger enables Gearbox to do more with its existing brands, create new brands, and, potentially, undertake the merger and acquisition of other successful industry and industry-adjacent entities and properties," Gearbox said.

Embracer Group, which is based in Sweden, owns the companies THQ Nordic, Koch Media/Deep Silver, Coffee Stain, Amplifier Game Invest, Saber Interactive, and DECA Games, with Gearbox becoming Embracer's seventh outfit. It has a number of game developers in its roster, including Metro studio 4A Games and Darksiders developer Gunfire Games.

Below is a breakdown of the acquisition price. As you can see, Gearbox gets $188 million in cash up front, with further upfront payments that net the company $363 million on day one. Gearbox can earn many millions more if the company reaches certain milestones, and then a further $715 million after that pending other key milestones.

The Transaction in brief

Upfront consideration - USD 363 million on a cash and debt free basis, as follows:

• USD 188 million in cash; and
• 7,438,983 B shares in Embracer, equivalent to USD 175 million, divided into equal parts subject to a one-year (12 months) and two-year (24 months) lock-up period, respectively.

Operational earn out - up to USD 300 million over six-years

• USD 150 million in cash; and
• 6,376,271 B shares in Embracer, equivalent to USD 150 million, vesting over six years, conditional upon completion of certain projects and that certain key employees remain employed by Gearbox 6 years following completion of the transaction.

Financial earn out - up to USD 715 million over six-years

• Financial earn out 1: Up to USD 180 million in cash; and
• 8,926,780 B shares in Embracer, equivalent to USD 210 million, subject to the financial development of Gearbox. If the accumulated Adjusted EBITDA over four years exceeds USD 335 million, the Financial earn out 1 will be triggered and will range from USD 210 million to USD 390 million on a proportionate basis based on an accumulated Adjusted EBITDA ranging from USD 335 million to USD 621 million. If earned, the Financial earn out 1 will be payable in shares until the aggregate amount is USD 210 million and all amounts in excess of USD 210 million will be paid in cash.. If the accumulated Adjusted EBITDA is lower than USD 335 million, the financial earn out 1 is zero. If the accumulated Adjusted EBITDA is higher than USD 621 million, the financial earn out is capped at USD 390 million.
• Financial earn out 2: Up to USD 325 million in cash, subject to the financial development of Gearbox. If the accumulated Adjusted EBITDA over six years exceeds USD 702 million, the Financial earn out 2 will be triggered and will range from USD 175 million to USD 325 million on a proportionate basis based on an accumulated Adjusted EBITDA ranging from USD 702 million to USD 1,304 million. If the accumulated Adjusted EBITDA is lower than USD 702 million, the financial earn out 2 is zero. If the accumulated Adjusted EBITDA is higher than USD 1,304 million, the financial earn out is capped at USD 325 million.
• The Earn-Out Consideration Shares will be issued at a price of SEK 197.57 per share which equals the 20 day volume weighted average price of Embracer B shares on Nasdaq First North Growth Market up to and including 2 February 2021, and using the FX rate USD/SEK of 8.3984 as of 2 February 2021.
• The Earn-Out Consideration Shares will be freely tradable when earned following fulfillment of operational and financial targets. The Earn-Out Consideration Shares are issued when earned and released if targets are met.
• Financial earn out 1 catchup mechanism: If the financial targets for Financial earn out 2 over six years are met, Financial earn out 1 may be recovered on a proportionate basis based on the cumulative financial performance over six years..