Video games group acquires games developer in £46.4m deal

Listed video games developer Sumo Group has signed a contract to acquire Pipeworks owner Lake Street Labs Buyer Corp, for an enterprise value of up to $99.5m. (£77.5m) with initial consideration of $59.5m. (£46.4m)

The initial consideration is being satisfied with $35m (£27.3m) from the Group’s existing cash resources and $24.5m (£19m) through the issue of new equity in Sumo Group.

Sheffield-based Sumo has also today released its unaudited half year results for the six months ended 30 June 2020. Its reported revenues are up to £26.3m from £20.8m, with pre-tax profits of £2.8m, up from £1.3m.

Founded in 1999, Pipeworks is an established US video games developer based in Eugene, Oregon. It provides full development, co-development, and live operations to premier video game publishers and other partners.

Since foundation, Pipeworks has shipped close to 100 games and advanced technology solutions to nearly 50 clients and partners.

Sumo says the acquisition will give it significant presence on the West Coast of the US, enabling better access and support to existing and potential new clients based in North America.

It adds: “Growing talent is vital to the success and growth of Sumo Group. Pipeworks’ 134-strong team brings an abundance of valuable experience and takes the Group’s headcount to nearly 1,000.

“The acquisition brings additional Original-IP and Own-IP to the Group, including the video game Prominence Poker.

“It is expected to be significantly earnings enhancing in the year ending 31 December 2021, being the first full year of ownership.

“Following completion of the acquisition, Sumo Group expects to have net debt close to zero.” 

Carl Cavers, chief executive officer of Sumo, said: “We are delighted to announce the acquisition of Pipeworks, the largest acquisition Sumo Group has made since IPO.

“The acquisition gives us an instant, established and significant presence in the important North American market, with improved access to both new and existing clients and markets.

“Sumo Group is thriving. Our underlying market is very strong, and we are seeing good opportunities for new games, including Original-IP developed by our talented studios.”

Lindsay Gupton, chief executive officer of Pipeworks, added: “We are absolutely thrilled to be joining Sumo Group.

“Our ambition is to be the best and most innovative game developer in North America and this will be a ‘level-up’ for all of us at Pipeworks.

“I’ve known Carl and the team at Sumo for a long time and have the greatest respect for them as a company, as game developers, and most importantly, as people.”

Responding to its latest results, Sumo Group said the market backdrop is “extremely positive”, with increased growth in the numbers of people playing video games due to the COVID-19 lockdown and strong demand for high quality, interactive content .

It notes a further increase in headcount to 853 at 31 August 2020, largely achieved by remote interviews and strong visibility, with nearly 88.9% of forecast development fee revenue for FY 20 contracted or near-contracted.

Cavers said: “More people than ever are playing video games, as a result of the pandemic, and the market outlook remains extremely positive.

“Our talented teams continue to produce high-quality, interactive content, which is well received by gamers across the globe.

“We are absolutely delighted with the achievements of our people under challenging circumstances, and, with strong visibility for FY 20, remain very confident in the Group’s prospects.

“We remain well positioned to capitalise on the expansion in the market and remain focused on delivering further growth both organically and, as demonstrated by the announcement of Pipeworks today, via acquisition.”

Zeus Capital acted as lead financial adviser on the acquisition transaction.