Keywords Studios PLC (LON:KWS) is to buy Beijing based Mindwalk for US$5.5mln in a deal expected to be earnings enhancing during 2016.
It represents the first significant move into the fast growing Chinese market, the group said, and enlarges the scale of its art services business.
Mindwalk was founded in 2004 and provides outsourced art creation services to the video games industry.
The acquisition provides Keywords with access to Chinese game developers and publishers and a base to sell art services to clients in North America, Europe and the Far East.
Mindwalk's clients include Electronic Arts, Microsoft, Zenimax and Sony.
It will add 150 artists to Keywords' existing 500 artist employees and contractors.
In 2015, Mindwalk posted revenues of $4.2mln, up from $2.7mln in 2014 and underlying pre-tax profit of $0.8mln (2014: $0.4mln), while good further growth is expected in 2016.
Keywords chief executive Andrew Day told investors: "In combination with our start-up operation in Shanghai, Mindwalk will provide the group with a solid platform from which to grow a full suite of video game services in China, serving Chinese game developers and publishers both domestically as they localise their games for international markets, as well as international developers and publishers looking to market their games in China."
Keywords is paying a total consideration of around US$5.5 million for the net assets and goodwill of the business, by $3.9mln in cash, $0.5 mln of which is deferred until the third anniversary of acquisition, funded from the group's existing resources.
The remainder is via the issue of 513,189 Keywords shares on the second anniversary of the completion of the acquisition. The deal is expected to be complete no later than June 30 this year.
Broker finnCap rates Keywords a 'buy'.
Analyst Harold Evans said importantly it gives the business greater penetration into China – a large and growing market.
"In combination with Keywords’ start-up operation in Shanghai, Mindwalk will provide a good platform from which to grow a full suite of video game services in China, serving Chinese game developers and publishers both domestically as they localise their games for international markets, as well as international developers and publishers looking to market their games in China. We temporarily suspend our forecasts and look forward to an update at prelims next Tuesday."
Keywords shares added 0.47% to 213.5p on the day.
---ADDS BROKER COMMENT AND SHARE PRICE---