With its track record of shrewd acquisitions, it is little surprise that Keywords Studios PLC (LON:KWS) has got the chequebook out again.
This time it has gone across the Atlantic to buy a profitable Canadian company that will be incorporated into Keywords’ functional testing unit, resulting in significant operational synergies and margin improvement.
The video games production services provider is to buy Global Video-Games Services Inc (GVGS), and its principal trading entity, Enzyme Testing Labs Inc for C$5.4mln in cash.
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Founded in 2002, Canada-based Enzyme is one of the most recognised technical services brands in the video games industry, Keywords said.
In 2015, it clocked up revenue of C$11.5mln and made a profit before interest and tax of C$1.3mln. The company’s net assets after adjusting for loans being repaid are estimated to be C$2.3mln.
Enzyme's strengths are in functional and localisation testing of video games for leading game publishers and developers. In addition, it provides localisation services and focus group testing; the latter fitting well with Player Research Ltd, the Brighton-based company Keywords acquired last month.
"The acquisition of Enzyme brings together two of the leading video games testing providers, reinforcing Keywords' position as the market leader in the field, with testing operations in Montreal, St-Jérôme, Seattle, Tokyo, Singapore, New Delhi, Milan and Dublin,” said Andrew Day, chief executive of Keywords Studios.
"The acquisition will not only generate considerable cost synergies but it will provide greater scale, flexibility and breadth of services for our combined interactive media clients globally,” he added.
Broker finnCap noted that the acquisition has come a bit late in the current financial year, but it should have a more pronounced effect next year.
“In addition to operational synergies to provide greater scale and breadth of service, we also see opportunities for cost synergies, whereby Keywords existing geographic footprint can be used effectively, most significantly in Montreal and Tokyo,” the broker said.
Meanwhile, Numis Securities upgraded its 2017 earnings per share forecasts by 5% on the back of the acquisition and nudged up its price target to 555p from 525p.
No change has been made to its forecasts for the current year, as Enzyme will only contribute over the quiet Christmas period.
“We continue to believe that Keywords is extremely well positioned in an attractive growth market,” Numis said.
Keywords shares were up 2.1% at 468p in late-morning trading.
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