20th May 2024 09:28
(Alliance News) - Keywords Studios PLC shares jumped after the firm announced it received private equity bid interest, with the possible cash bid representing a hefty 73% premium to its last closing price.
The AIM-listed provider of technical and creative services for video game production said the latest cash approach of 2,550p per share is a "significant increase from the initial proposal".
It values all of Dublin-based Keywords at around GBP2.03 billion. The proposed bid price is a chunky 73% premium to the firm's closing price of 1,470p on Friday.
Keywords said the latest approach follows "four previous unsolicited proposals from EQT in recent months".
Keywords shares jumped 61% to 2,366.00p in early trade in London on Monday morning.
The firm added: "The board remains confident in the company's growth strategy of building the only truly global platform providing solutions to the video games and entertainment industries, both organically and through acquisitions, and EQT is supportive of this strategy." Should a firm offer be made, Keywords would give it its backing, for now, however, it advised shareholders to "take no action".
EQT has until the close of play on June 15 to announce whether it plans to make a firm bid.
The last time Keywords shares traded around the possible EQT bid price was May last year. It had traded even higher earlier in 2023, before the shares struggled "due to concerns about generative artificial intelligence", analysts at Peel Hunt commented.
"Based on our [earnings before interest, tax, depreciation and amortisation] estimate for 2025, this possible offer implies a multiple of 12x," Peel analysts said.
"MergerMarket reports recent gaming platform takeouts at 16x Ebitda. Sumo Group, a company very similar to KWS, was acquired at a multiple of 32x in 2021, while Codemasters, a publisher and developer of its own games, was acquired at a multiple of 31x in December 2021."
Former London listings Sumo and Codemasters were acquired by Tencent Holdings Ltd and Electronic Arts Inc, respectively.
Shore Capital Markets has a GBP18 fair value for Keywords, which the EQT offer surpasses.
"Following the highs of the pandemic (share price reached over GBP30 in 2021) as the industry normalised, along with an unfavourable narrative around potential AI threats, KWS has struggled to regain investor confidence and shares have remained weak. We continue to value the leading status of the group, along with its multiple service lines and blue-chip client base. Additionally, we see outsourcing as an essential pillar to the growth of the wider video games industry, leaving KWS well-placed. That being said, whilst still growing, the organic growth has slowed over the past few years and profit margins appear fairly fixed over the medium term," Shore analyst Katie Cousins commented.
By Eric Cunha, Alliance News news editor
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