Keywords Studios PLC (AIM:KWS, OTC:KYYWF) saw its shares jump 62% in early trading after confirming a £2.2 billion bid approach from EQT Group.
The proposed deal, which offers £22.50 per share, represents a more than 50% premium to Keywords' last closing price. Shareholders would also receive a final dividend payment if the acquisition proceeds.
Keywords, which provides services to the gaming industry, stated this bid was one of several from the private equity firm. However, the board indicated this particular offer might be recommended. EQT, managing around £200 billion in assets, has until June 15 to make a formal offer.
The company, which serves clients like Activision Blizzard and Tencent, has faced challenges with its share price dropping nearly 50% since its peak in September 2021 due to concerns over AI replacing some of its services. Despite this, the board remains confident in its growth strategy, which EQT supports.
In early trading, the stock was up 904p at £23.74 - £1.24 above the indicative offer (and suggesting the bid may go higher).
Shore said the current deal surpassed its fair value for the stock, which was around £18.
Peel Hunt said the offer represented 12 times underlying earnings (EBITDA), which was essentially the level at which Keywords shares were trading before confidence was undermined by the threat posed by generative AI.
The broker points out that recent gaming platform take-outs have completed at an average of 16 times EBITDA.
Sumo Group, a company very similar to Keywords, was acquired at a multiple of 32 times in 2021, while Codemasters, a publisher and developer of its own games, was acquired at a multiple of 31 times in December 2021, Peel Hunt noted.