Sweden's Embracer Restructures: A Win for Investors in Troubled Times

Sweden's Embracer Restructures: A Win for Investors in Troubled Times

Sweden has emerged as a leading European capital market over the past ten years, outpacing Germany, Italy, and France in attracting new listings. Gaming powerhouse Embracer Group is bolstering this trend, announcing a strategic split into three distinct, publicly traded entities on the Nasdaq Stockholm exchange.

This move addresses the company's debt situation while appealing to investors. It was born of necessity: Embracer, founded by visionary CEO and controlling shareholder Lars Wingefors, amassed substantial debt through aggressive acquisitions. Its journey began with Wingefors selling used comics and video games, and the company boomed along with the pandemic gaming surge. However, slowing revenue in recent times signaled a shift.

A Pragmatic Division

Embracer's restructuring divides the company along existing lines:

• Asmodee (Board Games): This division's consistent revenue and modest capital needs position it well to manage the legacy debt burden. It will spin off first later this year.
• Coffee Stain & Friends (Mobile & Free-to-Play): Focusing on a growing market, this division's spinoff is slated for next year.
• Middle-earth Enterprises & Friends (AAA Titles): Home to iconic IPs like Lord of the Rings, this core Embracer division possesses the highest potential along with greater volatility.

Strategic Goals

Embracer's prior asset sales lowered debt, but this restructure aims higher:

• Lowering Debt: Asmodee will assume most of the outstanding debt, allowing the remaining divisions to operate with a clean slate.
• Investor Appeal: Each company will have a distinct risk and growth profile, attracting specific investor groups.
• Unlocking Value: The share price undervalues Embracer in its current form. The spinoffs should garner higher valuations, with the two core gaming entities potentially achieving forward EBITDA multiples closer to six times.

This restructuring sets the stage for Embracer to recapture investor confidence and deliver on its substantial potential.