Will artificial intelligence be able to develop video games quickly and cheaply in the future? EQT is not convinced. The Swedish private equity group has closed a deal to acquire Dublin-based Keywords Studios, valuing the AIM-listed company at £2 billion. The video game service provider's shares were under pressure due to the threat from AI. The 67 percent premium offered by EQT suggests that the company believes the potential of AI is overestimated.
Indeed, EQT achieved a good price. Even the maximum price of £25.50 per share discussed in May was well below the peak of Keywords in 2021. The final offer was lower, at £24.50. This reflected a downgrade in the company's outlook: it was announced that organic growth was negative in the first half of the year. Additionally, Keywords, being one of the last remaining gaming stocks on the UK AIM market, was strategically at a dead end.
The Slowdown in Keywords Has More to Do with Game Developers Shifting Their Development Budgets into the Future than with AI
The problem was that Keywords relied on its high valuation to continue a roll-up strategy. Since 2013, the company had made more than 60 acquisitions. The attempt to consolidate the sector was much easier when the shares traded in 2021 at a 40x multiple of expected earnings, representing a more than 100 percent premium over the rest of the sector.
This valuation had dropped to only ten times earnings before the bid. This was partly due to the general issues in the UK AIM market for small caps, which is broadly trading at a record discount. EQT's bid, which is based on 22 times the 2025 earnings, is still below the average since the IPO in 2013.
The shareholders will hardly complain. Without a solid assessment, Keywords' strategy does not seem sustainable. There is still a lot of potential: Keywords is the largest company providing services to video game manufacturers, but the current market share is estimated to be only 6 percent worldwide.
Certainly! Here is the translation of the heading into English:
"Given the cold shoulder from the stock market, private ownership looks like the best way forward. Additional funds from EQT should accelerate the roll-up strategy. And if AI will change the outsourcing of games, Keywords will have the financial power to lead rather than follow.
